ANNUAL INFORMATION FORM - Hydro One · ANNUAL INFORMATION FORM For the Year Ended December 31, 2014 February 27, 2015

ANNUAL INFORMATION FORMFor the Year Ended December 31, 2014

February 27, 2015

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DEFINITIONS

CORPORATE STRUCTURE

FORWARD-LOOKING INFORMATION

ABOUT HYDRO ONEOur Mission and VisionOur Strategy Corporate Awards

GENERAL DEVELOPMENT OF THE BUSINESS

Electricity Sector LandscapeOEBOPA and IESO 2013 Long-Term Energy Plan

Recent Industry Activity Premier’s Advisory Council on Government Assets Customer Service InitiativesDistribution Sector ConsolidationRegulated Price Plan Structure TOU Pricing StructureProcurement of New Generation

Recent Developments at Hydro One Sustainable Electricity Company Designation

OVERVIEW OF HYDRO ONE

DESCRIPTION OF THE BUSINESS Our Business Segments

Our Transmission Business Overview

Transmission Planning Transmission Assets

Transmission Stations Transmission Lines Network OperationsTelecommunications Facilities

Transmission Capital Expenditure PlansMajor Transmission Capital Development Projects Transmission Projects at the Local Load Connection Level Transmission Sustainment

TABLE OF CONTENTS

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Bruce to Milton Double Circuit Transmission LineNERC/NPCCNERC Critical Infrastructure Protection StandardsOur Distribution Business Distribution Capital Expenditure Plans Distribution Assets Remote Communities Conservation and Demand Management Advanced Distribution System Smart Meters Our Telecommunications Business Other Business Particulars Employees Compensation Pension Plan Outsourcing Arrangements Environmental

Health, Safety and Environmental Management System Permits and Approvals Regulation of Releases Hazardous Substances

PCBAsbestos Herbicides Wood Preservatives

Land Assessment and Remediation Electric and Magnetic Fields

Health and SafetyInsurance Legal Proceedings and Regulatory Actions Financial Cornerstone

REGULATION The Statutory and Operating Framework

Federal Framework Ontario Framework The Ontario Regulatory Process

Contractual Arrangements, Codes and Licences Operating Agreement with the IESO Hydro One’s Relationships with Other Market Participants Electricity Industry Codes Electricity Industry Licences

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Rate Orders and Related Issues for Hydro One’s Businesses Transmission

Current Rate Orders and Review of the Existing Transmission Rate StructureBypass CompetitionFacilities Applications

Distribution Current Rate Orders and Distribution Rate Structure

Hydro One Networks Inc. Hydro One Brampton Networks Inc. Hydro One Remote Communities Inc.

Rural and Remote Rate Protection Rate Protection and Determination of Direct Benefits to Accommodate

Renewable Energy Generation Facilities Ontario Clean Energy Benefit ActConnection Cost Responsibility

RISK FACTORS Ownership by the Province Regulatory Risk Risk of Natural and Other Unexpected Occurrences First Nation and Métis Claims RiskRisk from Transfer of Assets Located on ReservesRisk Associated with Information Technology Infrastructure Work Force Demographic RiskLabour Relations RiskRisk Associated with Arranging Debt Financing Asset Condition Environmental Risk Pension Plan Risk Risk Associated with Outsourcing ArrangementsMarket and Credit Risk Risk Associated with Transmission Projects Risk from Provincial Ownership of Transmission Corridors

DIVIDENDS

DESCRIPTION OF CAPITAL STRUCTURE

CREDIT RATINGS OF SECURITIES AND LIQUIDITY

MARKET FOR SECURITIES

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DIRECTORS AND OFFICERS Directors

Name and Municipality of ResidenceInformation Regarding Certain Directors

Executive OfficersName and Municipality of Residence

Indebtedness of Directors and Executive Officers

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS Relationships with the Province and Other Parties

Overview Transfer Orders Indemnities Payments in Lieu of Corporate Taxes Memorandum of Agreement

TRUSTEES AND REGISTRARS

MATERIAL CONTRACTS

INTERESTS OF EXPERTS

ADDITIONAL INFORMATION

STATEMENT OF EXECUTIVE COMPENSATION Compensation Discussion and Analysis

OverviewGovernance

Composition of the CGHRC Committee Members Relevant and Direct Experience Compensation Policies and Practices Aligned to Risk Management Independent Consultant for the CGHRC

ELEMENTS OF COMPENSATION Base Salary Performance-Based Compensation

Fund Determination Fund Allocation

Corporate Performance Measures and Targets Injury-Free Workplace Satisfying our CustomersContinuous Improvement and Cost EffectivenessMaintaining a Commercial Culture

Overall Performance for 2014Individual Performance

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BenefitsRole of NEOs in Determining Executive Compensation

SUMMARY COMPENSATION TABLEPension Plan Benefits

Defined Benefit Pension PlanTermination and Change of Control BenefitsDirector Compensation

Director Compensation Table

APPOINTMENT OF AUDITOR

AUDIT, FINANCE AND PENSION INVESTMENT COMMITTEE INFORMATION The Audit, Finance and Pension Investment Committee’s Charter Composition of the Audit, Finance and Pension Investment Committee Relevant Education and Experience Audit, Finance and Pension Investment Committee Oversight Pre-Approval Policies and Procedures External Auditor Service Fees

CORPORATE GOVERNANCE DISCLOSUREBoard of DirectorsSummary of Attendance of DirectorsDirectors’ Board Memberships in Other Reporting IssuersBoard MandatePosition DescriptionsCommittees of the Board (as at December 31, 2014)

Audit, Finance and Pension Investment CommitteeBusiness Transformation CommitteeCorporate Governance and Human Resources CommitteeHealth, Safety and Environment CommitteeRegulatory and Public Policy Committee Strategy Committee

Orientation and Continuing EducationEthical Business ConductBoard, Committee and Director AssessmentsBoard and Executive Composition

APPENDIX “A” AUDIT, FINANCE AND PENSION INVESTMENT COMMITTEE MANDATE

APPENDIX “B” HYDRO ONE INC. BOARD OF DIRECTORS MANDATE

APPENDIX “C” HYDRO ONE TRANSMISSION AND DISTRIBUTION LICENCES

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2014 ANNUAL INFORMATION FORM 1

EXCEPT WHERE OTHERWISE INDICATED, ALL INFORMATION PRESENTED HEREIN IS AS AT DECEMBER 31, 2014

DEFINITIONS

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DEFINITIONS


DEFINITIONS

DEFIN

ITIONS

For convenience, in this Annual Information Form:

“2010 LTEP” means “Ontario’s Long Term Energy Plan, Building Our Clean Energy Future”, announcedby the Province on November 23, 2010;

“2013 LTEP” means “Ontario’s Long-Term Energy Plan, Achieving Balance”, announced by the Provinceon December 2, 2013;

“ADS” means the Advanced Distribution System;

“AIF” means this Annual Information Form;

“B2M LP” refers to B2M Limited Partnership;

“BES” means Bulk Electric System;

“Board” means the Board of Directors of Hydro One Inc.;

“Canadian GAAP” means Canadian Generally Accepted Accounting Principles per Part V of theChartered Professional Accountants Canada Handbook;

“CDM” means conservation and demand management;

“CDM Code” means the CDM Code for Electricity Distributors;

“Council” means the Premier’s Advisory Council on Government Assets;

“DS” means a distribution station;

“DSC” means the Distribution System Code;

“EA” means the Environmental Assessment Act (Ontario);

“ECA” means an Electricity Conservation Agreement

“Electricity Act” means the Electricity Act, 1998, as amended;

“ESA” means an Environmental Site Assessment;

“ESR” means an Environmental Study Report;

“ETS” means Export Transmission Service;

“FERC” means the U.S. Federal Energy Regulatory Commission;

“First Nation” means a “band” as that term is defined in the Indian Act (Canada);

“FIT” means the feed-in-tariff program of the OPA;

“GEA” means the Green Energy and Green Economy Act, 2009 (Ontario);

“GTA” means the Greater Toronto Area;

“Hydro One”, “our company”, “we”, “us”, “our”, and “the company” refer to Hydro One Inc.and its subsidiaries and predecessors, except where the context requires otherwise;

DEFINITIONS

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DEFINITIONS

“IASB” refers to the International Accounting Standards Board;

“IESO” refers to the Independent Electricity System Operator, previously named the IndependentElectricity Market Operator;

“IFRS” means International Financial Reporting Standards;

“Inergi Agreement” means the outsourcing service agreement with Inergi LP entered into onNovember 28, 2014 and commencing March 1, 2015;

“Intertie” means a transmission facility that physically connects adjacent transmission systems indifferent jurisdictions (e.g. provinces or countries) for the purpose of electrical power transfers;

“IPL” refers to an international power line;

“IPSP” means the Integrated Power System Plan developed by the OPA;

“IRM” means Incentive Regulation Mechanism;

“IT” means Information Technology;

“LDC” means a local distribution company;

“LRAM” means Lost Revenue Adjustment Mechanism;

“MAAD Application” means an application for a Merger Acquisition Amalgamation and Divestiturefiled with the OEB;

“Market Rules” means the rules made under section 32 of the Electricity Act that are administered bythe IESO;

“Micro FIT” means the micro feed-in-tariff program of the OPA;

“Ministry” or “Minister” means the Ontario Ministry of Energy or the Ontario Ministry of Energy andInfrastructure and, as applicable, its respective Minister;

“NEB” refers to the National Energy Board;

“NEB Act” means the National Energy Board Act, 1985 (Canada), as amended;

“NERC” means the North American Electric Reliability Corporation;

“NPCC” means the Northeast Power Coordinating Council Inc.;

“NYSE” means the New York Stock Exchange;

“OEB” refers to the Ontario Energy Board;

“OEB Act” means the Ontario Energy Board Act, 1998, as amended;

“OEFC” means the Ontario Electricity Financial Corporation;

“OGCC” means Hydro One’s Ontario Grid Control Centre located north of Toronto, Ontario;

DEFINITIONS


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“OHSAS 18001” means Occupational Health and Safety Assessment Series 18001 standard;

“Ontario” refers to the Province of Ontario as a geographical area;

“OM&A” means Operation, Maintenance and Administration;

“OPA” refers to the Ontario Power Authority;

“Open Access” refers to the opening of Ontario’s wholesale and retail electricity markets tocompetition, which officially occurred on May 1, 2002;

“OPG” refers to Ontario Power Generation Inc.;

“PCB” means polychlorinated biphenyls;

“Province” refers to the Government of the Province of Ontario;

“PWU” refers to the Power Workers’ Union;

“Reserve” means a “reserve” as that term is defined in the Indian Act (Canada);

“ROE” refers to return on equity;

“RPP” refers to the regulated price plan structure for the cost of electricity supplied to low volume anddesignated customers;

“RRFE” means the Renewed Regulatory Framework for Electricity;

“RRP” means the Renewed Regulatory Framework for Electricity Distributors and Transmitters;

“RRRP” means Rural and Remote Electricity Rate Protection;

“SEC” means the United States Securities and Exchange Commission;

“Small FIT” means the small feed-in-tariff program of the OPA;

“Smart Grid Advisory Committee” means the committee created by the OEB on June 27, 2013;

“Society” refers to the Society of Energy Professionals;

“SS” refers to a switching station;

“TOU” refers to “time-of-use” rates;

“TS” refers to a transmission station;

“TSC” means the Transmission System Code;

“U.S.” means the United States of America; and

“U.S. GAAP” means United States Generally Accepted Accounting Principles.

CORPORATE STRUCTURE

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CORPORATE STRUCTURE

HYDRO ONE NETWORKS INC. HYDRO ONE BRAMPTON NETWORKS INC.

HYDRO ONE REMOTE COMMUNITIES INC. HYDRO ONE TELECOM INC.

HYDRO ONE INC.

CORPORATE STRUCTURE


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CORPORATE STRUCTUREHydro One Inc. was incorporated as Ontario Hydro Services Company Inc. by Articlesof Incorporation dated December 1, 1998, under the Business Corporations Act(Ontario). On May 1, 2000, we changed our name to Hydro One Inc.

Our registered office and head office is located at 483 Bay Street, 8th Floor, South Tower, Toronto,Ontario, M5G 2P5.

The following are our principal subsidiaries, each of which is wholly owned by us and is incorporatedunder the laws of Ontario:

• Hydro One Networks Inc. – carries on all business relating to our ownership, operation andmanagement of electricity transmission and distribution systems and facilities;

• Hydro One Brampton Networks Inc. – carries on the business relating to our ownership,operation and management of electricity distribution systems and facilities in Brampton, Ontario;

• Hydro One Remote Communities Inc. – carries on all business relating to our ownership,operation, maintenance and construction of generation and distribution assets used in the supply ofelectricity to remote communities throughout Northern Ontario; and

• Hydro One Telecom Inc. – carries on all of our business relating to leasing dark fibre andproviding lit telecommunications capacity to other telecommunication carriers, large corporations,government, healthcare, and education institutions.


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Such statements include, but are not limited to,statements about our strategy, including ourstrategic objectives; statements about the generaldevelopment of our business, including statementsrelated to distribution sector consolidation, the2013 LTEP, the Council, and customer serviceinitiatives; statements related to the OEB’s RPP and TOU pricing, including expectationsregarding the exemption of TOU pricing forcertain rural customers and the timeline forconverting those customers to TOU pricing;statements related to the FIT program; expectationsregarding connections of new generation to ourtransmission and distribution systems, includingtheir cost and impact on our systems; expectationsregarding future renewable energy generation,including the possibility of incurring capitalexpenditures related thereto; statements regardingcurrent and future capital expenditures and capitaldevelopment projects and other investment plansincluding expected benefits, completion and in-service dates and our ability to recover the costs related to such projects and to obtainenvironmental and other regulatory approvals inconnection therewith; statements regarding thereliability of our distribution and transmissionsystems including equipment performance;statements about our transmission and distributioncapacity; expectations regarding load growth andnew generation; statements about our ongoinginitiatives including the expected results and their completion dates; expectations regardingNERC/NPCC standards, expected timing of

required compliance/exceptions, the cost impactof their adoption, and possible recovery of thesecosts in rates; statements about smart meters;statements about CDM programs and targets;statements related to the buildout of an ADS for our distribution business, including futureinvestments and the recoverability of thoseinvestments; statements related to the expiry oflabour agreements, the attraction and retention of staff and the maintenance and development ofthe skills and competence of existing employees;statements regarding the Broader Public SectorExecutive Compensation Act, 2014; statementsabout our outsourcing arrangements; expectationsregarding environmental expenditures and otherenvironmental matters including potential futurecosts related to PCBs, asbestos, herbicide andland assessment and remediation, our ability torecover such costs and the need for environmentalapprovals and assessments; statements relating to health and safety initiatives and opportunities;expectations related to amendments to electricityindustry codes; statements regarding the RRFE;expectations regarding our operating agreementwith the IESO; statements regarding ourtransmission and distribution rates and customerbill impacts resulting from our rate applications;statements related to our connection assetsincluding recovery of costs related thereto;expectations regarding developments in thestatutory and operating framework for electricitydistribution and transmission in Ontario includingchanges to rates, rate orders, cost recovery, rates




FORWARD-LOOKING INFORMATION This AIF contains, and Hydro One’s oral and written public communications oftencontain, forward-looking statements that are based on current expectations, estimates,forecasts and projections about the business of Hydro One and the industry in whichHydro One operates and includes beliefs and assumptions made by the management of our company.

of return and rate structures in both ourtransmission and distribution businesses;expectations regarding the recoverability of ourexpenditures in future rates and the effects it mayhave; statements related to the filing and status of our applications to the OEB and the timing ofdecisions from the OEB; statements regarding theOntario Clean Energy Benefit Act, 2010;statements relating to our relationship with theProvince, including the possibility of the Provincemaking declarations pursuant to our memorandumof agreement with them; statements relating to ITsystem failures or security breaches; expectationsregarding workforce demographics; statementsregarding our borrowing requirements; theestimated impact of changes in the forecastedlong-term Government of Canada bond yield(used in determining our regulated rate of return)on our net income; expectations regardinganticipated expenditures associated withtransferring assets located on Reserves andnegotiation of rental terms; statements regardingprovincial ownership of our transmission corridors;statements regarding future pension contributionsand our pension plan; our expectation regardingour need for the OEFC indemnity associated withthe original transfer orders; expectationsregarding implementation of health and safetyprograms; statements regarding labour relations;and legal proceedings in which we are currentlyinvolved. Words such as “aim”, “could”, “would”,“expect”, “anticipate”, “intend”, “attempt”,“may”, “plan”, “will”, “believe”, “seek”,“estimate”, and variations of such words andsimilar expressions are intended to identify suchforward-looking statements. These statements arenot guarantees of future performance and involveassumptions and risks and uncertainties that aredifficult to predict. Therefore, actual outcomes and results may differ materially from what isexpressed, implied or forecasted in such forward-looking statements. Hydro One does not intend,

and Hydro One disclaims any obligation toupdate any forward-looking statements, except as required by law.

These forward-looking statements are based on a variety of factors and assumptions including, but not limited to: no unforeseen changes in thelegislative and operating framework for Ontario’selectricity market; favourable decisions from theOEB and other regulatory bodies concerningoutstanding rate and other applications; no delays in obtaining the required approvals; no unforeseen changes in rate orders or ratestructures for our distribution and transmissionbusinesses; no unfavourable changes inenvironmental regulation; continued use of U.S.GAAP; a stable regulatory environment; and nosignificant event occurring outside the ordinarycourse of business of our company. Theseassumptions are based on information currentlyavailable to Hydro One including informationobtained by Hydro One from third-party sources.Actual results may differ materially from thosepredicted by such forward-looking statements.While Hydro One does not know what impact any of these differences may have, its business,results of operations, financial condition and itscredit stability may be materially adverselyaffected. Factors that could cause actual results or outcomes to differ materially from the resultsexpressed or implied by forward-lookingstatements include, among other things:

• the risks associated with being controlled by the Province including the possibility that theProvince may make declarations pursuant to our memorandum of agreement with it, theProvince could mandate the selling of all or partof our distribution business, as well as potentialconflicts of interest that may arise between us,the Province and related parties;


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• the risks associated with being subject toextensive regulation including risks associatedwith OEB action or inaction;

• the timing and results of regulatory decisionsregarding our revenue requirements, costrecovery and rates;

• the risk that previously granted regulatoryapprovals may be subsequently challenged,appealed or overturned;

• the risk to our facilities posed by severe weatherconditions, natural disasters or catastrophicevents and our limited insurance coverage forlosses resulting from these events;

• opposition to and delays or denials of therequisite approvals and accommodations forprojects necessary to increase transmission and distribution capacity;

• the risk that we may incur significant costsassociated with transferring assets located on Reserves;

• the risks associated with information systemsecurity, with maintaining a complex informationtechnology system infrastructure, and withtransitioning most of our financial and businessprocesses to an integrated business andfinancial reporting system;

• the risks related to our work force demographicand our potential inability to attract and retainqualified personnel;

• the ability to negotiate appropriate collectiveagreements;

• the risk of labour disputes;

• the ability to maintain compliance with ourlicence requirements in the event of a labourdispute;

• the risk that we are not able to arrange sufficientcost-effective financing to repay maturing debtand to fund capital expenditures and otherobligations;

• the risks associated with the execution of ourcapital and maintenance programs necessary to maintain the performance of our aging assetbase;

• the potential for substantial and currentlyundetermined or underestimated environmentalcosts and liabilities;

• the risk that assumptions that form the basis of our recorded environmental liabilities andrelated regulatory assets may change;

• the risk that future environmental expendituresare not recoverable in future electricity rates;

• the risk that the presence or release ofhazardous or harmful substances could lead toclaims by third parties and/or governmentalorders;

• the risk that it may be determined that exposureto electric and magnetic fields emanating frompower lines and other electric sources maycause health problems;

• the potential impact of not being able to recoverour pension costs;

• future interest rates, investment returns, changesin benefits and changes in actuarialassumptions;

• the potential that we may incur significantexpenses to replace some or all of the functionscurrently outsourced if our agreements withInergi LP or Brookfield Johnson Controls CanadaLP are terminated or expire before a new serviceprovider is selected;




• the risks of counter-party default on ouroutstanding derivative contracts;

• the risks associated with changes in interestrates or discount rates;

• the risks associated with changes in the forecastlong-term Government of Canada bond yield;

• changes in the electricity industry requiringchanges to investment needs not foreseen inlong-term rate forecasting;

• the risk that unexpected capital expendituresmay be needed to support renewablegeneration or resolve unforeseen technicalissues;

• the risk that we will be unable to source thematerials necessary to support our workprograms;

• the risk that load or consumption could fallbelow projected levels;

• unanticipated changes in our costs;

• the impact of the 2013 LTEP on our companyand the costs and expenses arising therefrom;

• the impact of the ownership by the Province oflands underlying our transmission system;

• the inability to prepare financial statementsusing U.S. GAAP, or IFRS, as applicable;

• actions taken by the Province resulting from the review of Ontario’s electricity sector by theOntario Distribution Sector Review Panel; and

• the impact of increased competition on ourtransmission business.

Hydro One cautions you that the above list offactors is not exclusive. Some of these and otherfactors are discussed in more detail under “RiskFactors” in this AIF and you should review suchsection in detail.

In addition, Hydro One cautions you that forward-looking statements provided in this AIF concerningpotential future expenditures are provided in orderto provide context to the nature of some of ourfuture plans and may not be appropriate for otherpurposes.


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Transformer Station500,000 Volts - 230,000 Volts

RenewableGeneration

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Distribution Lines44,000 Volts

Step-DownDistribution Station

DistributionLines Below44,000 Volts

Pole-MountedTransformer

Home Wiring120/240 Volts

Transmission Lines230,000 Volts - 115,000 Volts

Simplified Illustration of an Electric Power System


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ABOUT HYDRO ONE

ABOUT HYDRO ONE


ABOUT HYDRO ONE

ABOUT HYDRO ONE

ABOUT HYDRO ONEHydro One is wholly owned by the Province, and our transmission and distributionbusinesses are regulated by the OEB. Our industry, including our company, is governedwithin the broad legislative framework of the Electricity Act and the OEB Act.

Our AIF provides material information about usand our business in the context of historical andfuture developments. Our AIF describes ourcompany and our operations, risks and otherfactors that impact our business.

Our Mission and VisionOur mission and vision are driven by our values:health and safety, excellence, stewardship andinnovation. We live our values every day ineverything we do and they represent what is most important to us.

As stewards of the Province’s electricity grid, ourcore role is to provide safe, reliable and cost-effective electricity transmission and distributionand to connect clean and renewable sources ofgeneration to Ontario’s electricity grid.

Our Strategy Our corporate strategy builds on our strongcommitment to the Province and is shaped by ourvalues. It lays out a set of objectives to positionour company to achieve our mission and visionwhich is to be an innovative and trusted companydelivering electricity safely, reliably and efficientlyto create value for our customers. Our valuesrepresent our core beliefs:

•Health and safety: Nothing is moreimportant than the health and safety of ouremployees, those who work on our property,and the public.

• Excellence: We achieve excellence throughcontinuous training, ensuring we are preparedand equipped to deliver high-quality andaffordable service, with integrity.

• Stewardship: We invest in our assets andpeople to build a safe, environmentallysustainable electricity network in a commercialmanner.

• Innovation: We innovate through newprocesses, people and technology to allow us to find better ways to meet the needs of ourcustomers.

We have eight strategic objectives that areinextricably linked. They drive the fulfillment of ourmission and vision and ensure we remain focusedon achieving our corporate goal of providing safe,reliable and affordable service to our customers,today and tomorrow, while increasing enterprisevalue for our shareholder.

Creating an injury-free workplace andmaintaining public safety. Health and safety mustbe integrated into all that we do as we continue to reinforce that nothing is more important than the health and safety of our employees. We willcontinue to create a passion for preventing injury,staying safe and keeping each other safe. We will invest in building a culture of accountability to continue our drive to zero injuries in theworkplace. In addition, we will continue tostrengthen our already strong safety culturethrough our Journey to Zero initiative and oursuccessful certification to the OHSAS 18001standard.

Satisfying our customers. We exist to serve ourcustomers, and serving our customers meansreducing costs, improving customer service andmeeting their expectations regarding reliablepower supply. We will continue to focus our efforts

to improve our relationship with customers and toimprove our customers’ satisfaction with us. Wewill meet our commitments, make customers ourfocus in all planning discussions, communicateeffectively, coordinate across our company, andmaximize opportunities to improve our corporateimage and every customer interaction. We will develop and deliver targeted customer segmentstrategies, products and delivery channels that will respond to their unique needs.

Continuous innovation. Innovation represents one of our values and is critical to achieving our mission and vision. We have been usinginnovation and technology to build the foundationof our company as the utility of the future. Overthe next two decades, we will continue to build on that foundation to improve the reliability andefficiency of our transmission and distributionsystems and provide our customers with morecapability to manage their power costs. Thedevelopment of the ADS is a key element in ourinvestment in innovation, as are the investmentswe have made, through our Cornerstone project,in next generation business tools to enable us toimplement leading industry practices and increaseproductivity.

Building and maintaining reliable, affordabletransmission and distribution systems. Ourtransmission strategy is to provide a robust andreliable provincial grid that accommodatesOntario’s emerging generation profile, managesan aging asset base and meets demandrequirements through prudent expansion andeffective maintenance. Our distribution strategy is focused on continuing to meet the challenge of providing reliable, affordable service to ourcustomers in a wide range of geographicalregions and climate zones; incorporating ADStechnology to provide greater visibility; and

increased control and improved customer service.We will meet customer expectations regardingreliability, in part through our investment planningprocess, which starts with the identification ofasset and customer needs.

Protecting and sustaining the environment forfuture generations. Consistent with our value ofstewardship, we play a central role in reducingOntario’s carbon footprint through the delivery of clean and renewable energy and throughmeasures that allow our customers to manage and reduce their energy use.

Championing people and culture. We believe ourprimary strength is the capability of our people. In order to sustain this advantage, we willcontinue to address the issues of corporate culture,labour demographics, diversity, development ofcritical core competencies, and skill andknowledge retention. We will continue to developa culture of accountability and trust as a keycomponent to fostering employee engagement.Our labour strategy is to consolidate and clarifyour collective agreements, increase flexibility andreduce costs and maintain a progressiverelationship with our unions.

Maintaining a commercial culture that increasesvalue for our shareholder. For the deliverycomponent of a customer bill, we are committed to maintaining total annual bill impacts for anaverage residential customer at or below the rateof inflation, and delivering income and dividendsto our shareholder. We will pursue growthopportunities through LDC consolidation toincrease the enterprise value of our company by leveraging our existing assets, technologies,capabilities, unparalleled experience in LDCacquisitions and our distribution and transmissionfootprint.

ABOUT HYDRO ONE

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ABOUT HYDRO ONE

ABOUT HYDRO ONE


ABOUT HYDRO ONE

Achieving productivity improvements and cost-effectiveness. To achieve our mission and vision,we must constantly strive for productivity throughefficiency and effective management of costs.Productivity is key to meeting our other strategicobjectives and, in particular, to achieving valuefor our customers and our shareholder.

Corporate AwardsIn 2014, Hydro One was one of the six LDCs honoured by the State of New Jersey inrecognition of our support in the recovery effortsfrom Hurricane Sandy. Additionally, we werepresented with the Utility Analytics Institute’s 2014 Innovation Award in Grid Analytics for thecreation and implementation of an asset analyticsapplication tool.

In 2013, we were presented with the OHSAS18001 Standard award from the OccupationalHealth and Safety Assessment Series for HydroOne’s commitment to continual health and safetyimprovement. Further, in 2014, we successfullycompleted our first annual Surveillance Auditrequired for our company to maintain ourcertification under the OHSAS 18001 Standard.

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Electricity Sector LandscapeAs a participant in the Ontario electricity sector, our company isaffected by the following key parties in the electricity sector in Ontario.

OEBThe OEB is the principal regulator of Ontario’s electricity industry. It isan independent adjudicative tribunal that regulates Ontario’s electricitysector in the public interest, and ensures an adequate level of consumerprotection in the energy market. The OEB licenses all participants in theelectricity sector, including the IESO, generators, transmitters, distributors,wholesalers and retailers. The OEB’s mandate and authority come fromthe OEB Act, the Electricity Act, and a number of other provincial statutes.

OPA and IESOThe OPA was created in 2004 by virtue of an amendment to theElectricity Act, as a non-profit corporation without share capital, licensedand regulated by the OEB. Part II.1 of the Electricity Act defined itsobjects and the OPA had a mandate to ensure the adequacy andefficiency of electricity supply in Ontario through planning of electricitysupply and demand.

The IESO is the system controller of Ontario’s electricity system. The IESOmanages the reliability of Ontario’s power system, forecasts the demandand supply of electricity and co-ordinates emergency preparedness forOntario’s electricity system. The IESO also operates the wholesaleelectricity market, while ensuring fair competition through marketsurveillance.

The OPA and the IESO were amalgamated effective January 1, 2015.


GENERAL DEVELOPMENT OF THE BUSINESSThe following is a description of our company’s business and how it has developed,with a particular emphasis on the past three years. In this section, we will describe theelectricity sector landscape, as well as recent industry activity, and recentdevelopments.

Ontario

Ontario Energy Board

Independent ElectricitySystem Operator

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2013 Long-Term Energy Plan On December 2, 2013, the Province released itsupdated Long-Term Energy Plan, the 2013 LTEP,replacing the 2010 LTEP. The 2013 LTEP sets outthe Province’s plan of action for the energy sector,including strategies for mitigating increases inelectricity rates; continued renewable energyprocurement; nuclear refurbishment; enhancedregional planning with respect to energyinfrastructure; transmission enhancements;encouraging Aboriginal participation in energydevelopment, transmission and conservationprojects; and the expansion of natural gasinfrastructure. The plans are guided by the goal of balancing five core principles: cost-effectiveness, reliability, clean energy, communityengagement, and CDM. Pursuant to the 2013LTEP, the Province “will encourage OPG andHydro One to explore new business lines andopportunities inside and outside Ontario. Theseopportunities will help leverage existing areas of expertise and grow revenues for the benefit of Ontarians”. The Province expects Hydro One to begin planning for a new Northwest bulktransmission line, west of Thunder Bay (the “North West Bulk Transmission Line Project”), with the project scope to be recommended by theOPA. On October 1, 2014, Hydro One receivedcorrespondence from the OPA requesting that the project commence development according tothe scope and timing contained within the letter.Subsequently, the Company applied to the OEBfor a variance account to track the project’sdevelopment costs for future recovery. Theapplication is now in the interrogatory phase.

Recent Industry Activity

Premier’s Advisory Council on Government Assets On April 11, 2014, the Province announced theappointment of the Premier’s Advisory Council onGovernment Assets to provide the Province with

recommendations designed to maximize the valueof certain provincially owned assets, one of whichbeing the Company. The objective of the review isto advise the Province on how to best maximizevalue from its assets. The Council’s Terms ofReference provided guidance indicating that itwould give preference to continued ownership of government assets, but would consider mergers,acquisitions and divestments if there is a strongbusiness case, and would enhance value totaxpayers of the Province.

The interim report released on November 19,2014, noted the Company’s transmission businessis a well-run entity with some opportunities todeliver savings on the operating side and oncapital expenditures, and recommended that theProvince maintain its ownership of the Company’stransmission business. The interim report notedthat Ontario’s local electricity distribution system isan unnecessarily cluttered and fragmented systemwith too many entities, some of which are highlyinefficient, unable to adapt to the changingenvironment and lack capital to modernize orconsolidate.

Consequently, the Council recommended that the Company’s transmission and distributionbusinesses be separated, and that Hydro OneNetworks Inc.’s distribution business and HydroOne Brampton Networks Inc. be used to spurindustry consolidation. The Council alsorecommended that the Province reduce its interestin our Company’s distribution business by bringingin private sector investment.

The Province has now asked the Council to buildon its work by entering phase two, which includesthe Council receiving and discussing written ideasrelated to encouraging consolidation and to HydroOne Brampton Networks Inc. and Hydro OneNetworks Inc.’s distribution business, and



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finalizing its recommendations to the Province. We understand that the Province is specificallyconsidering the sale of Hydro One BramptonNetworks Inc., as well as the distribution businessof Hydro One Networks Inc.

Customer Service Initiatives During 2014, we focused tremendous effort on serving our customers and building strongerrelationships. Through a series of threeteletownhalls, we spoke to more than 60,000customers from across Ontario and received theirfeedback on how we serve them and their ideason making it easier to do business with HydroOne. To further improve our customer serviceperformance culture, we have recently announcedtwo initiatives: our draft customer commitmentsand a third party expert Customer ServiceAdvisory Panel. Our customer commitments willform the basis of our promises to our customers,and the Customer Service Advisory Panel willprovide advice and hold us accountable to thepromises we make to our customers. Once ourcustomer commitments are finalized with inputreceived from our customers, our employees andour Customer Service Advisory Panel, we willdevelop a public scorecard and will report on ourperformance as a transparent, accountable andcustomer focused organization. Service levels ofour billing system and at our call centre are nowbetter than they were before we implemented ournew billing system and we have set new targetsthat, when achieved, will put us among the best inthe business.

Distribution Sector Consolidation In 2009, the transfer tax exemption applicablewhen publicly owned utilities sell electricitydistribution assets to other publicly-owned utilitiesin Ontario was made permanent by the Province.In April 2012, the Province announced it waslaunching a comprehensive review of Ontario’s

electricity sector to explore options to improveefficiencies, including LDC consolidation. As a result, the Province created the OntarioDistribution Sector Review Panel (the “Panel”). In December 2012, the Panel released its report,“Renewing Ontario's Electricity Distribution Sector:Putting the Consumer First,” with recommendationsfor electricity sector consolidation. This reportrecommended that the 73 LDCs comprising thefocus of the report be consolidated into eight to12 larger regional electricity distributors within atwo-year timeframe. Specifically, it recommendedthere be two regional distributors in northernOntario and between six and 10 regionaldistributors in southern Ontario with a minimum of 400,000 customers each. Given our company's position as the largest LDC, the reportrecommended that Hydro One Networks Inc. begiven unambiguous direction to lead and engagein the discussion of the merger of distributionassets with the appropriate interested utilities on a commercial basis. The Minister subsequentlyindicated he was supportive of voluntaryconsolidation and expects all LDCs to pursueinnovative partnerships and transformativeinitiatives that will result in electricity ratepayersavings.

As the utility sector began to assess the impact ofthe Panel’s recommendations, Hydro One was anactive participant in the competitive sale processof several LDCs. Hydro One was the successfulproponent in three acquisitions in 2014: NorfolkPower Inc. (“Norfolk Power”), Woodstock HydroHoldings Inc. (“Woodstock Hydro”), andHaldimand County Utilities Inc. (“HaldimandHydro”).

In April 2013, Hydro One entered into anagreement with the Corporation of Norfolk County(“Norfolk County”) to purchase all the outstandingshares of Norfolk Power for approximately

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$93 million, subject to OEB approval. On July 3,2014, the OEB issued its Decisions and Order for our company to acquire all of the outstandingshares of Norfolk Power and for the transfer ofNorfolk Power Distribution Inc.’s (the distributioncompany of Norfolk Power) distribution system toHydro One Networks Inc.

In August 2014, we completed the Norfolk Poweracquisition transaction. The total purchase pricefor Norfolk Power, net of the long-term debtassumed and adjusted for preliminary workingcapital and other closing adjustments wasapproximately $68 million.

In May 2014, we entered into an agreement withthe City of Woodstock to purchase all outstandingshares of Woodstock Hydro for approximately$46 million, subject to OEB approval. Hydro Onewill pay the City of Woodstock approximately $29 million, being the enterprise value ofWoodstock Hydro, net of Woodstock Hydro’sexisting debt of approximately $17 million.Woodstock Hydro is the holding company whichowns Woodstock Hydro Services Inc., a localdistribution company serving the City ofWoodstock. Hydro One filed its MAAD

Application on July 9, 2014 seeking OEBapproval of the acquisition of Woodstock Hydro.An oral hearing for this application was held inJanuary 2015.

In June 2014, we entered into an agreement with Haldimand County to purchase all of theoutstanding shares of Haldimand Hydro forapproximately $75 million, subject to OEBapproval. Hydro One will pay Haldimand Countyapproximately $65 million, being the enterprisevalue of Haldimand Hydro, net of HaldimandHydro’s existing debt of approximately $10million. Haldimand Hydro is the holding companywhich owns Haldimand County Hydro Inc., a localdistribution company, and Haldimand CountyEnergy Inc., a non-rate-regulated telecomcompany. Hydro One filed its MAAD Applicationon July 31, 2014 seeking OEB approval of theacquisition of Haldimand Hydro.

We intend to continue to consider growthopportunities through LDC consolidation byleveraging our existing assets, technologies,capabilities, unparalleled experience in LDCacquisitions and our distribution footprint.


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RPP Pricing (per kWh)

Winter (Nov. 1, 2013 – April 30, 2014) Lower Tier Price 8.3 cents

Upper Tier Price 9.7 cents

Summer (May 1, 2014 – Oct. 31, 2014) Lower Tier Price 8.6 cents


Winter (Nov. 1, 2014 – April 30, 2015) Lower Tier Price 8.8 cents


TOU Pricing StructureTOU pricing structure is for consumers witheligible smart meters. One of the OEB’s goalsthrough TOU pricing is to provide an incentive for consumers to shift some consumption awayfrom periods of high total consumption (called “on-peak”) to periods of low demand (called “off-peak”). On August 4, 2010, the OEB issuedits final determination to mandate TOU pricing forRPP customers. All eligible Hydro One distributioncustomers were migrated to TOU billing as of June2011, except certain customers located in very

rural and very sparsely populated areas. OnDecember 1, 2014, Hydro One filed a request for a five year exemption extension for 120,000hard-to-reach customers and requested permissionto migrate an additional 50,000 customers backto tiered pricing as it is not economically feasibleto consistently provide actual readings from thesemeters. An interim Decision dated December 18,2014, has granted the exemption until June 30,2015 or until a final Decision has been issued.Below is a chart outlining the TOU periods and the prices.

Regulated Price Plan StructureOn April 1, 2005, the OEB implemented the RPP.The RPP regulates only the commodity price ofelectricity and does not affect the rates chargedfor transmission and distribution of electricity.Prices are developed using the RPP Manualmethodology involving two essential steps;forecasting the total RPP supply cost for twelvemonths and establishing prices to recover the

forecast supply cost for RPP consumers over theperiod. The price structures are designed to maketheir consumption weighted average price equalto the average supply cost. There are two pricestructures: tiered pricing and TOU pricing. A consumer with an average load profile will pay the same average price under either pricestructure.


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RPP Pricing (per kWh) –TOU Prices

Winter (Nov. 1, 2013 – April 30, 2014) Off-peak Price 7.2 cents7pm – 7am

Weekdays, Weekends and Holidays

Mid-peak Price 10.9 cents11am – 5pm Weekdays

On-peak Price 12.9 cents7am – 11am, 5pm – 7pm

Weekdays

Summer (May 1, 2014 – Oct. 31, 2014) Off-peak Price 7.5 cents7 pm – 7 am


Mid-peak Price 11.2 cents7 am – 11 am, 5 pm – 7 pm

Weekdays

On-peak Price 13.5 cents11 am – 5 pm Weekdays

Winter (Nov. 1, 2014 – April 30, 2015) Off-peak Price 7.7 cents7 pm – 7 am


Mid-peak Price 11.4 cents11 am – 5 pm Weekdays

On-peak Price 14.0 cents7 am – 11 am, 5 pm – 7 pm

Weekdays

New RPP prices are computed at six-month intervals and are the result of an integrated consideration ofrebasing and true-ups.



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Procurement of New Generation Pursuant to a directive from the Province, the OPA set up the FIT program for procurement ofrenewable generation. The program is currentlydivided into three streams: • Micro FIT (projects up to 10 kW); • Small FIT (projects between 10 kW and

generally up to 500 kW depending onconnection voltage); and

• Large Renewable Procurement (competitive bidsfor projects generally greater than 500 kW) –this program has not been finalized.

All such projects may result in connection to Hydro One Networks Inc.’s distribution ortransmission systems. Under the FIT program, the OPA has entered into contracts or conditionalcontracts with generation proponents pursuant towhich the OPA will pay a fixed rate for powerproduced over a specified period of time. HydroOne continues to connect projects for which thereare firm contracts.

In May 2013, the Province announced that itwould make 900 MW of new capacity availablebetween 2013 and 2018 for the Small FIT andMicro FIT programs. The Province has set annualprocurement targets, from 2014 onwards, of 150 MW for Small FIT generation and 50 MW forMicro FIT generation. The Province is working withthe OPA to develop a competitive process forrenewable energy generation projects above 500 kW which is expected to launch in 2015.

Recent Developments at Hydro One

Sustainable Electricity Company DesignationIn January 2015, Hydro One Networks Inc. wasdesignated a “Sustainable Electricity Company”.The Sustainable Electricity Company™ brand markis a designation established by the CanadianElectricity Association. Companies that wish to usethe Sustainable Electricity Company™ brand markmust commit to core subjects, issues and relatedactions and expectations contained in thestandard that are deemed applicable andsignificant to the company and its stakeholders.The brand mark is granted for five years, with the option for renewal thereafter. The use of theSustainable Electricity Company™ brand markdemonstrates Hydro One’s commitment toresponsible environmental, social and economicpractices, and to the principles of sustainabledevelopment.

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OVERVIEW OF HYDRO ONEWe are the largest electricity transmission and distribution company in Ontario. We own and operate substantially all of Ontario’s electricity transmission system,accounting for approximately 97% of Ontario’s transmission capacity based onrevenue approved by the OEB.

Based on assets, our transmission system is one ofthe largest in North America and our distributionsystem is the largest in Ontario. We have threereportable segments: (1) our transmissionbusiness; (2) our distribution business; and (3) our other business.

Our transmission business, which representedapproximately $12.5 billion of our total assets of$22.5 billion as at December 31, 2014, beingapproximately 56% of our total assets, transmitselectricity through a high-voltage network fromgenerators to our own distribution networks, toLDCs, and to transmission-connected companies.We also own and operate facilities thatinterconnect our transmission system with systems in neighbouring provinces and states.

Our distribution business, which representedapproximately $9.8 billion of our total assets of$22.5 billion as at December 31, 2014, beingapproximately 43% of our total assets, distributeselectricity through our low-voltage distributionsystem to municipalities and to rural areas.Customers of our distribution business includeLDCs, customers with loads exceeding 5 MW, and rural and urban customers.

Hydro One Brampton Networks Inc. is our urbandistribution company serving customers in the Cityof Brampton, Ontario. We also operate, throughour subsidiary Hydro One Remote CommunitiesInc., small, regulated generation and distributionsystems in remote communities across NorthernOntario that are not connected to Ontario’selectricity grid.

Our other business segment is primarilyrepresented by the operations of Hydro OneTelecom Inc. This subsidiary markets dark and litfibre-optic capacity to telecommunications carriersand commercial customers with broadbandnetwork requirements. The assets of this segmentconstituted approximately $0.2 billion of our totalassets of $22.5 billion as at December 31, 2014,being approximately 1% of our total assets.

Total Assets December 31, 2014(millions of dollars)

(100%)

Transmission$12,540

(56%)

Other$205(1%)

Distribution$9,805(43%)

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DESCRIPTION OF THE BUSINESSOur Business Segments

Our Transmission Business

Overview Our transmission system operates at 500 kV, 230 kV and 115 kV and transmits electricity to customers consisting of 46 LDCs, our owndistribution businesses and 90 transmission-connected companies. Electricity is also deliveredto utilities in other jurisdictions through Interties.Electricity is supplied by generators, both withinand outside Ontario, of which 113 in Ontario are connected directly to the transmission grid.Our transmission system serves approximately five million customers, directly or indirectly, andtransported approximately 139.8 TWh of energythroughout Ontario in 2014. Revenues from ourtransmission business accounted for approximately24% of our total revenues in 2014 andapproximately 25% and 26% of our total revenues in 2013 and 2012, respectively.

Our transmission system forms an integratedtransmission grid that can be divided into twocategories based on function. The bulk systemoperates primarily at 500 kV or 230 kV overrelatively long distances and links major sources of generation to transmission stations and largerarea load centres. The area supply systemoperates at 230 kV or 115 kV and links the bulksystem to local generators and loads, such asLDCs, industrial customers and our own retaildistribution operations. Transmission stationslocated near load centres step down the highvoltage to the level required for retail distributionsystems or end-use customers connected directly to our transmission system.

Our transmission system is interconnected with theNorth American eastern system that is comprisedof virtually all of the electric utilities east of theContinental Divide. Our transmission businessowns and operates 26 Interties at 345 kV, 230 kVand 115 kV levels with New York (7), Quebec(11), Michigan (4), Manitoba (3) and Minnesota(1).

Through these 26 Interties, the IESO, in its report“Ontario Transmission System” dated November27, 2014, estimates that, in the summer, with alltransmission elements in service, the theoreticalmaximum capability for exports is up to 5,960 MW and for imports is up to 6,631 MW;in the winter, the theoretical maximum capabilityfor exports is 6,295 MW and for imports is 6,963 MW respectively. In operation, the actualimport and export capabilities may be restrictedsignificantly by limitations within our or anotherjurisdiction’s transmission networks, unscheduledpower flows between interconnected systems andlocal load and generation patterns.

Our transmission system is relatively free ofrestrictions in its ability to supply electricity tomajor load centres from generating sourceslocated across Ontario, although there are certain short duration periods when thetransmission constraints restrict economicalutilization of generation. A 500 kV system servesas the transmission “backbone” around the GTAwith 500 kV connections to Northern Ontario, Ottawa, London and the major generatingfacilities in Ontario. As new generation projectsare assessed in Ontario, the impact on thetransmission system is assessed and whererequired, transmission investment plans areinitiated in a timely manner.

This section on our transmission business consistsof five topics:1. Transmission Planning2. Transmission Assets3. Transmission Capital Expenditure Plans4. NERC/NPCC5. NERC Critical Infrastructure Protection

Standards

1. Transmission Planning Hydro One develops transmission plans for newtransmission facilities and for refurbishment andreplacement of existing transmission facilities, as required. The plans for new facilities identifyproposed equipment, configuration, routing andresulting capacities for network, local area andconnection/transformation investments. We consultwith customers to determine the need, timing and technical solutions for new connection/transformation facilities. We also consult withaffected communities, stakeholders and FirstNations and Métis communities whose rights may be potentially impacted as part of the project development process for new or upgraded transmission lines.

The need for additional network and local areacapabilities is determined in consultation with theOPA (which plans future generation and CDMprograms) and customers and in response togovernmental policy and direction. The need forshort-term and long-term solutions may also behighlighted in the reliability reports issued by theIESO. The IESO assesses the system impact ofproposed facilities based on requests by HydroOne, as required by the Market Rules. Projectsinvolving new transmission lines longer than twokilometres are subject to the OEB’s leave-to-construct approval. The EA approval requirementsfor a “transmission line” or “transmission station”are prescribed in Ontario Regulation 116/01made under the EA. Whether or not a particular

project is subject to class environmental or anindividual environmental assessment approval isdependent on that particular project.

Hydro One’s plans to maintain, refurbish orreplace existing facilities are developed on thebasis of maintenance standards, asset conditionassessments and end-of-life criteria specific to each type of equipment. Priorities are assigned toeach type of investment based on the risks that itmitigates. These investment plans are alsoincluded in our rate filings submitted to the OEB.

2. Transmission AssetsOur transmission assets can be divided into fourfunctional categories: A. Transmission Stations, B. Transmission Lines, C. Network Operations, and D. Telecommunications Facilities.

A. Transmission Stations Transmission station facilities are used for thedelivery of power, voltage transformation andswitching, and serve as connection points for bothcustomers and generators.

Transmission stations can be broadly classifiedinto two categories. The first category consists of

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terminal stations, including switchyards located at generating facilities, which are used mainly forswitching and voltage transformation between the500 kV, 230 kV, and 115 kV systems. The secondcategory consists of customer supply stations,which are transmission stations that deliver powerfrom the transmission system to wholesalecustomers. Currently, most transmission stationsused for customer supply consist of paired circuitsand step-down transformers that are meant toensure that the failure of any one element will notresult in a permanent loss of supply. For smaller or remote loads, a simpler station design with asingle transformer or a single circuit is used.

Our transmission system includes 290 transmissionstations whose components may include highvoltage power transformers, power circuitbreakers, high voltage switches, capacitor andreactor banks, protection and control systems,metering and monitoring systems together with site infrastructures such as buildings and securitysystems.

B. Transmission Lines Our transmission lines are classified into bulkpower transmission lines and area supply lines.Bulk power transmission lines are main linesdelivering power from generating stations orinterconnections to receiving terminal stations. Bulk power transmission lines are part of theintegrated transmission network and generallyoperate at 500 kV or 230 kV, with a few at 115 kV. Area supply lines take power from thetransmission network at the receiving stations andtransmit it to customer supply transmission stationsat customer load centres. The usual voltage levelsof area supply lines are 230 kV or 115 kV. All ofthese lines are overhead except for approximately271 circuit kilometres of underground cables inurban areas.

The transmission system includes approximately29,000 circuit kilometres of high voltage lineswhose major components consist of cables,conductors, wood or steel support structures,foundations, insulators, connecting hardware and grounding systems.

C. Network Operations All of our transmission assets and many of our sub-transmission assets are managed from onecentral location, the OGCC. As owners andoperators of the largest portion of the Ontariotransmission network, we have the responsibilityunder the Electricity Act to ensure that our assetsare operated in a safe and reliable manner which optimizes connection performance to our customers.

Accordingly, the OGCC is the controlling authorityfor our company’s transmission network and forlarge portions of the sub-transmission network. The OGCC is an operating centre that monitorsand controls our transmission and sub-transmissionnetworks via the Network Management System.With this computer system, the OGCC remotelymonitors and operates transmission equipment,responds to alarms and contingencies, and canrestore and reroute interrupted power.


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The OGCC reviews, approves, performs and/orauthorizes all switching and control actions on ourtransmission system and sub-transmission systemassets. The OGCC also provides the dispatchfunction across the entire company fortransmission and distribution assets. The OGCCcoordinates all planned transmission and sub-transmission equipment outages with stakeholdersand customers. Additionally, the OGCC isresponsible for notifying affected customers of any planned distribution outages. For forceddistribution outages, the OGCC creates outagetickets which contain all the relevant informationfor the outage, dispatches field crews,communicates estimated time of repair andconfirms outage restoration with the Hydro Onedistribution customer.

The OGCC is fully supported by onsite customerservice, engineering, operations technology,training, process and business planning staff.There is a fully functional back-up facility whichwould be staffed in the event of an evacuation of the OGCC.

D. Telecommunications Facilities Our telecommunications requirements includeservices necessary for protection and operation of the power system as well as voice andadministrative data. Power system protection

and control, and voice communications requiredfor control and restoration of transmission anddistribution assets have very stringent reliabilityand security requirements which must continue to be met during prolonged blackout conditions.These telecommunications requirements are vital to meeting our transmission reliability complianceobligations, ensuring the protection of our assetsand ensuring efficient and rapid restorationfollowing contingencies. These requirements aremet through the use of our own facilities andservices acquired from other telecommunicationsservice providers. The reliability and availability of telecommunication services used in theprotection and operation of our transmissionsystem are vital to meeting our interconnectionobligations, ensuring the protection of our assetsand ensuring the reliability of our transmissionsystem. Historically, if telecommunications serviceproviders were not able or willing to provide therequired services at an appropriate cost, weinstalled our own telecommunication facilities.These owned facilities include systems constructedusing various communication technologies such as fibre optic and metallic cables, wirelesstransmission and power line carrier equipment.

3. Transmission Capital Expenditure Plans Transmission Capital Expenditure Plans consist of four segments:A. Major Transmission Capital Development

Projects,B. Transmission Projects at the Local Load

Connection Level, C. Transmission Sustainment, andD. Bruce to Milton Double Circuit Transmission

Line.

Capital expenditures for the transmission portionof our business for 2015 are estimated to beapproximately $900 million net overall. Ourcapital investment plan is designed to address

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Ontario’s changing generation profile,accommodate load growth in areas throughoutOntario and support the expected increase inrenewable energy generation in furtherance of theGEA as discussed below. Additionally, this planseeks to sustain or improve our transmissionreliability performance, which is in the top quartileranking in Canada for transmission systems of115 kV and 230 kV. This plan also furthers ourongoing objective of sustaining the performanceof aging assets through refurbishment programsand end-of-life asset replacements.

In February 2011, the Minister issued a directiveto the OEB, which in turn issued a decision andorder on February 28, 2011, to amend thetransmission licence of Hydro One Networks Inc.to develop and seek approval for the followingprojects the scope and timing of which shall be inaccordance with the recommendations of the OPA(see “Regulation – Transmission – FacilitiesApplications”):

1. upgrade one or more existing transmissionlines west of London (see “Major TransmissionCapital Development Projects – Lambton toLongwood Transmission Upgrade”); and

2. build a new transmission line west of London.

Hydro One Networks Inc. has completed theupgrade of the Lambton to Longwood transmissionlines. This work was placed in service inSeptember 2014. The OPA has not yet providedHydro One Networks Inc. with anyrecommendations related to the build of a newtransmission line west of London.

To enable the Province’s expectations contained inthe 2013 LTEP, the Minister issued a directive tothe OEB dated November 27, 2013, and the OEBin turn issued a decision and order on January 9,2014, to amend the transmission licence of Hydro

One Networks Inc. to develop and seek approvalfor the Northwest Bulk Transmission Line Project.The scope and timing of the Northwest BulkTransmission Line Project shall be in accordancewith the recommendations of the OPA. OnOctober 1, 2014, Hydro One received a letterfrom the OPA recommending scope and timing forthis project. The Province also expects Hydro Oneand Infrastructure Ontario to work together toexplore ways to ensure that the Northwest BulkTransmission Line Project is developed anddelivered in a cost-effective manner and results invalue for Ontario electricity customers. Thesediscussions are currently underway.

Hydro One is also pursuing a number ofadditional projects as part of our company’stransmission investments. These projects, togetherwith those noted above, will require variousapprovals, including, but not limited to, OEBapprovals and EA approvals.

A. Major Transmission Capital DevelopmentProjectsSet out below are our current major transmissioncapital development projects for which we haveobtained or are actively seeking the requisiteapprovals. The major transmission system capitaldevelopment projects described below are atdifferent stages of development and may not

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proceed to construction if requisite approvals are not obtained or if anticipated generation does not materialize.

• Toronto Midtown Transmission ReinforcementProject

Supply to the midtown Toronto area is currentlyprovided by three 115 kV circuits between Leaside TS and Wiltshire TS. These circuits supplyBridgman TS and Dufferin TS from Leaside TS and also provide load transfer capability betweenthe Leaside TS and Manby TS. This project willreplace a section of aging cable and is expectedto provide additional capacity by adding one 115 kV circuit between Leaside TS and BridgmanTS. Hydro One Networks Inc. has obtained all the requisite approvals for this project andconstruction work is underway. The planned in-service date for the project is estimated to belate in 2015.

• Rebuild Hearn SS The existing 115 kV Hearn SS was identified byour company as due for refurbishment. The projectwas placed partially in service in December 2013with the remaining work expected to be completedin 2015.

• Upgrade 115 kV Switch Yards at Manby TS,Leaside TS, Hawthorne TS & Allanburg TS

To allow the incorporation of new renewablegeneration in the Toronto, Ottawa and Niagaraareas, the short circuit capability at each ofManby TS, Leaside TS, Hawthorne TS andAllanburg TS 115 kV yards will be increased from the existing 40 kA to 50 kA by replacing the 115 kV breakers. The upgrades at Allanburg TSand Leaside TS were completed in December2014. All breakers at Manby TS and HawthorneTS have been replaced and the planned in-servicedates for the additional station work are mid-2016 and mid-2015 respectively.

• Niagara Reinforcement Project This project comprises the construction of 76kilometres of 230 kV line from our Allanburg TS in the Niagara area to our Middleport TS in theHamilton area. The Niagara Reinforcement Projectis designed to relieve transmission bottlenecks that limit transfer of Niagara area generation and imports from New York State. The NiagaraReinforcement Project status is consideredsubstantially on time, with the exception that someproject work has been delayed due to accessissues created by a blockade related to aboriginalland claims on a section of the line. As a result,the OEB concluded that the project deservesspecial regulatory treatment and in its ruling ofAugust 2007, the OEB determined that interestcapitalized against this project could be expensedand recovered as a period cost from January 1,2007. It is anticipated that the remainingconstruction of the project will take approximatelytwo months to complete once a land settlementagreement has been concluded between theProvince, the federal government, and the Six Nations.

• Lambton to Longwood Transmission UpgradeThis upgrade involves the reconductoring ofapproximately 70 kilometres of 230 kV doublecircuit transmission line in southwestern Ontario

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between Lambton TS and Longwood TS with ahigher capacity related conductor. The upgradewill enable the connection of approximately 300-500 MW of additional renewable generation inthe area west of London. The project wasapproved for construction in November 2012,and placed in service in September 2014.

• Clarington TS (formerly Oshawa Area TS)Project

In October 2011, the OPA requested that HydroOne develop an implementation plan and initiatework on the installation of additional auto-transformer capacity at our proposed ClaringtonTS. In 2012, Hydro One commenced planningand environmental studies, and a draft ESR wasmade available for review on November 15,2012. On closing of the review period, multiplethird party requests had been submitted to theMinistry of the Environment to escalate the EAapproval from a class environmental assessment to a more comprehensive individual environmentalassessment. On January 2, 2014, the Minister ofEnvironment issued a decision on the requests andruled that an individual environmental assessmentis not required for the project and advised thatHydro One can proceed with the project, subjectto certain conditions. The final ESR was submittedto the Ministry of the Environment on January 16,2014. Hydro One began construction in July2014, and the planned in-service date is 2017.

• Guelph Area Transmission Refurbishment ProjectThe project includes an upgrade of five kilometres of existing 115 kV transmission line in south-central Guelph to 230 kV, the installation ofautotransformers at Cedar TS and upgrading theexisting Guelph North Junction to a new switchingstation. On March 8, 2012, Hydro One receiveda letter from the OPA, recommending that HydroOne proceed with development work for theproject, including the completion of the

environmental and regulatory approval processes.Following the OPA’s letter, Hydro One started theprocess. On September 26, 2013, the OEB issueda decision and order approving Hydro One’ssection 92 application for the project. Hydro Onestarted construction in late 2014 and the expectedin-service date is approximately 2016.

• Supply to Essex County TransmissionReinforcement Project

Hydro One is proceeding with this project, whichcomprises of a new 13 kilometre 230 kV doublecircuit transmission line in the Windsor-Essexregion and the construction of a new TS calledLeamington TS in the Municipality of Leamington.The class environmental assessment for the projecthas been completed and a final ESR was filed withMinistry of the Environment in July 2010. HydroOne submitted an application to the OEB undersection 92 of the OEB Act for leave to constructthe transmission line on January 22, 2014. Theplanned in-service date is mid-2018.

B. Transmission Projects at the Local LoadConnection LevelIn addition to our major capital developmentprojects, we also have transmission projects at the local load connection level. At the local loadconnection level, Hydro One continues to addresssupply needs with our customers in order to meettheir load growth. For projects required to providereliable delivery of electricity to the broader localcommunity, the participation and support of OPAand the affected LDCs as partners in joint planningstudies and throughout the consultation andapproval processes continue to be essential. Toaddress future needs of specific load connectioncustomers, we are in discussions with thosecustomers regarding new transmission stations andlines, as well as upgrades to existing stations andlines.

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C. Transmission Sustainment In order to maintain our top quartile transmissionreliability performance, our investment planincludes increased program expenditures forsustainment initiatives to manage the replacementand refurbishment of our aging transmissioninfrastructure. Increased investment is beingfocused on those transmission assets that have the most impact on our company’s strategicobjectives, including reliability and value to ourcustomers with targeted component replacementprograms such as air blast circuit breakers andtransformers, as well as improved controlinitiatives to protect against animal contacts. Also, we have moved to more integrated stationand circuit centric refurbishments than have beenundertaken historically. Given the current age ofour assets and infrastructure, where these broader,integrated investments are possible, significantefficiencies can be gained.

D. Bruce to Milton Double Circuit Transmission LineOn June 18, 2012, Hydro One Networks Inc.,and the Chippewas of Nawash First Nation and the Chippewas of Saugeen First Nation,collectively known as the Saugeen OjibwayNation (“SON”), entered into an agreement which contemplated that ownership of Hydro OneNetworks Inc.’s 500 kV double circuit transmissionline between the Bruce Nuclear Station and theMilton SS would be transferred to a partnership,being B2M LP, in which the SON would acquirean interest.

In November 2013, the OEB issued a decisionand order granting B2M LP a transmission licenceand granting Hydro One Networks Inc. leave totransfer the relevant transmission assets to B2M LP.In December 2014, the assets were transferred toB2M LP and the SON acquired a 34.2% interestin B2M LP. Our company operates the line for thepartnership.

4. NERC/NPCC In Ontario, the Market Rules mandate that wecomply with the reliability standards establishedby NERC and NPCC, and our transmission licencemandates that we comply with the Market Rules. A Market Rule amendment effective July 8, 2011caused those NERC and NPCC reliabilitystandards that have not otherwise been stayed or revoked and referred back to the standardsauthority (NERC and NPCC) for furtherconsideration by the OEB to be declared in forcein Ontario: (a) when the reliability standards aredeclared in force in the United States or, forNPCC reliability criteria, when declared in forceby NPCC; and (b) after the expiry of the periodfor initiating a review before the OEB and theconclusion of any such review.

On November 18, 2010, FERC, as the UnitedStates regulatory agency overseeing NERC, issued Order No. 743 directing NERC to revisethe definition of BES to address FERC’s technicalconcerns, and ensure that the definitionencompasses all facilities above 100 kV that arenecessary for operating an interconnected electrictransmission network. While there has beenconsiderable debate regarding the definition, the revised BES definition was approved by the FERC on March 20, 2014 and also by relevantregulatory authorities in Canada, including theOEB. Accordingly, in Ontario the definition cameinto effect in July 2014 with full compliance in2016.

Significantly more transmission facilities (facilitiesat or above 100 kV except excluded by definition)are now being designated BES and will berequired to comply with NERC reliabilitystandards. In Hydro One’s assessment, this willadd little, if any, additional improvement to thereliability of the interconnected BES. Adopting thisnew approach will result in significant additional

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costs to the transmission facility owners, includingHydro One. We anticipate these incremental costswill be spread over a number of years, and expectthat they will be recovered in rates.

In Ontario, the IESO has developed a “made inOntario” BES Exception Procedure and criteria to allow market participants such as Hydro One to submit an exception application for a newlydesignated BES element. Hydro One is currently inthe process of submitting exception applicationsfor some of the newly designated BES elements.

5. NERC Critical Infrastructure ProtectionStandardsNERC critical infrastructure protection standardscame into effect in 2009. The standards aredesigned to ensure that utilities and other users,owners, and operators of the bulk power system in North America have appropriate procedures in place to protect critical infrastructure from cyber attack. As a result, Hydro One’s physical,electronic and information security processes have been upgraded to meet more stringentsecurity requirements in order to meet NERC’srequirements.

Hydro One is currently mandated to comply withVersion 3 of the critical infrastructure protectionstandards. On November 26, 2012, NERC Boardof Trustees adopted Version 5 of the standards,which was approved by FERC on November 22,2013. On November 13, 2014, the NERC Boardof Trustees adopted a number of revisions toVersion 5 of the standards in response to a FERCOrder No. 791. NERC is required to file revisionsby February 3, 2015. The expected enforcementdates for Ontario vary depending on therequirements; many requirements are expected tobecome enforceable on April 1, 2016, whileothers are to become enforceable later.

The updated and revised standards will impactHydro One, resulting in additional work, effortand associated costs. We anticipate these costswould be spread over a number of years, andexpect that they would be recovered in rates.

Our Distribution Business

Our distribution systems provide customers withelectricity distribution services through a lowvoltage distribution network. During 2014,approximately 29.8 TWh of electricity weredelivered through the distribution system toapproximately 1.4 million customers located inrural and urban areas (including approximately150,000 urban retail customers located inBrampton, Ontario). The distribution systems alsoserve 23 LDCs that are not connected directly toour transmission system, another 33 LDCs that are connected to our transmission system and 37 customers with loads exceeding 5 MW. Thedistribution system comprises approximately3,300 feeders operating at voltages less than 50 kV, totalling approximately 123,000 circuitkilometres of lines; and 1,026 distribution andregulating stations. Our distribution systemsdistribute electricity from our transmission system and more than 14,200 small generators(approximately 1,600 generators that are greater

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than 10 kW and approximately 12,600 that areless than or equal to 10 kW).

Unlike the distribution systems found in densely-populated areas that are designed to include built-in transfer capability, Hydro One Networks Inc.’sdistribution systems supply mainly rural areas with low population densities and are mostlyconfigured as a radial system. This means thatthere is very limited transfer capability, as they are not designed in loops with connections toother feeders, and outages at any point along the feeder will cause all customers on the feederto lose power. As a result, fallen trees andcomponent failures on the feeders requireimmediate repair or replacement in order torestore service.

Unlike the distribution systems in areas with low population density, Hydro One BramptonNetworks Inc.’s system in Brampton is a densely-populated urban area. Accordingly, thedistribution system is designed with a large focus on underground distribution which is lesssusceptible to weather conditions. The majority ofinvestments in the distribution system in Bramptonare related to expanding the system in order toconnect new customers and to supportinfrastructure development such as roaddevelopment and widening. In addition to theinvestments in the distribution system expansion for needed capacity, efforts are also directed atconverting distribution systems in older sections ofBrampton into present day standard designs toimprove system reliability, performance androbustness.

Revenues from our distribution business accountedfor approximately 75% of our total revenues in2014 and approximately 74% and 73% of ourtotal revenues in 2013 and 2012, respectively.

This section on our distribution business consists of six topics:1. Distribution Capital Expenditure Plans2. Distribution Assets3. Remote Communities4. Conservation and Demand Management5. Advanced Distribution System6. Smart Meters

1. Distribution Capital Expenditure Plans Capital expenditures for the distribution portion of our business for 2015 are estimated to beapproximately $700 million net overall. Consistentwith our approved distribution rate application,capital expenditures for our distribution businessfor 2014 were focused on new load connections,trouble calls and storm damage, wood polereplacement, and system capability reinforcement.Going forward into 2015 and 2016, we expectto continue with these areas of focus. In responseto the GEA and the resulting FIT program beingadministered by the OPA to procure renewableenergy generation, we continue to observe arelatively high level of generation connectionactivity, particularly for Micro FIT generatingfacilities and Small FIT generating facilities. We invest in additions and modifications to ourdistribution system, as required by regulations, in order to connect new generating facilities.

Across Ontario, we are continuing with thereplacement of distribution assets that havereached their end-of-life. We are increasing thenumber of projects to renew distribution stationsand are increasing wood pole replacementquantities. In addition, we expect to continue to construct new lines and stations in response to system growth forecasts or high load reliefrequirements and the connection of newgeneration. We also intend to continue our effortsto make the distribution system more efficient andreliable, including investments in the ADS.

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In addition, we are continuing to focus on line-clearing activities to maintain the reliabilityperformance of our distribution system.

The actual timing and expenditures is uncertain asit is dependent upon various approvals, includingOEB rate application approvals, as well as theextent to which the cost of distribution systeminvestments made to enable the connection ofrenewable generation can be recovered.

2. Distribution Assets Our electricity distribution system generallyconsists of: (i) M class distribution feeders thatdeliver power at 44 kV and 27.6 kV from ourtransmission stations to our distribution stationsand to some industrial customers, local generatorsand LDCs; (ii) distribution and regulating stations;and (iii) F class distribution feeders that deliverpower at 14 kV, 8 kV and 4 kV from thedistribution stations to industrial, commercial,farm, local generation and residential customersas well as embedded LDCs. These feeders andstations include equipment such as poles,conductors, transformers, reclosers, protectiondevices and switches. Other assets include servicecentres and equipment, such as our transportationfleet, computing equipment and service andconstruction equipment.

3. Remote Communities Through our subsidiary Hydro One RemoteCommunities Inc., we operate 19 regulatedgeneration and distribution systems acrossNorthern Ontario which serve 21 remotecommunities that are not connected to Ontario’selectricity grid, the facilities of which are ownedeither by us or by OEFC, or in the case of Marten Falls, by the Marten Falls First Nation.These remote communities include a total ofapproximately 3,500 customers. Electricity usedby these remote communities is produced by 57

installed diesel generators owned or operated byus, which are supplemented by small amounts of wind or hydroelectric generation. Pursuant tosection 48.1 of the Electricity Act and OntarioRegulation 199/02 thereunder, we are required,through one or more of our subsidiaries, tooperate and maintain existing generation anddistribution assets in, and supply electricity to,these remote communities.

4. Conservation and Demand Management The Province has established specific provincialtargets for CDM that are fully funded through theGlobal Adjustment. Global Adjustment is a ratewhich is adjusted monthly that (a) accounts fordifferences between: (i) the market price forelectricity generation; and (ii) the rates paid toregulated and contracted generators; and (b)CDM programs. The Global Adjustment can bepositive or negative, depending on the level ofprices in the wholesale electricity market. A lowerwholesale market price is associated with a higherGlobal Adjustment. The OEB requires eachdistributor to file a report, by September 30annually, with the results of its CDM program.

The OPA annually submits to the OEB proposedexpenditure, revenue requirements and fees forreview pursuant to subsection 25.21 of the

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Electricity Act. Included in these submissions is theOPA’s operating budget required to administer theimplementation of CDM programs by LDCs suchas Hydro One.

Section 27.2 of the OEB Act gives the Province thepower to issue a directive to the OEB to take stepsto establish CDM targets to be met by LDCs andother licensees. The CDM Code was created inresponse to a directive dated March 31, 2010 bythe Minister. On November 12, 2010, the OEBissued final CDM targets for the period 2011-2014. The distribution business of Hydro OneNetworks Inc. was assigned a peak demandreduction target of approximately 214 MW andan energy reduction target of 1,130 GWh, andHydro One Brampton Networks Inc. was assigneda peak demand reduction target of approximately46 MW and an energy reduction target of 190GWh, in each case for the period of 2011-2014,which is equivalent to about a 6% peak demandreduction and on a cumulative basis, a 5% energyreduction.

On April 26, 2012, the OEB issued its CDMguidelines for all electricity distributors. Theseguidelines provide more specific guidance oncertain provisions in the CDM Code and the typeof evidence that should be filed by distributors insupport of an application for OEB-approved CDM

programs. The guidelines also provide details onLRAM related to CDM programs implementedunder the CDM Code. LRAM is the mechanism by which LDCs are compensated for lost revenuesassociated with their respective load reductionsresulting from CDM programs. In addition, theguidelines state that savings associated with TOUpricing are eligible to be counted towards the2011-2014 CDM targets.

On September 30, 2014, in accordance with theCDM Code, Hydro One Networks Inc. and HydroOne Brampton Networks Inc. each filed a 2013Annual CDM Report with the OEB outlining eachcompany’s CDM activities, energy and peakdemand savings results achieved in 2013, andexpectations regarding CDM targets for the end of 2014. Hydro One Networks Inc. reported thatit expected to reach 95%-100% of its demandtarget and 80% of its cumulative energy target bythe end of 2014. Hydro One Brampton NetworksInc. reported that it expected to reach 60% of itsdemand target and 100% of its cumulative energytarget by the end of 2014.

On December 21, 2012, the Minister issued adirective to the OPA to extend funding for theOPA-contracted Ontario-wide CDM programs forone additional year, to December 31, 2015. Thisextension will provide an opportunity for the OPAand LDCs to collaboratively work to strengthen thecurrent framework, and to keep customerprograms in place for 2015.

In March 2014, the Ministry issued paralleldirectives to the OEB and the OPA, respectively,regarding the new “2015-2020 ConservationFramework”. The directives call for the OPA toestablish a provincial target of 7 TWh of persistentenergy savings to be achieved by 2020 and forall LDCs to enter into an ECA with the OPA byDecember 31, 2014. Both Hydro One Networks

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Inc. and Hydro One Brampton Networks Inc.submitted their signed ECAs to the OPA inDecember 2014. Conservation opportunities will be provided to customers and available todistributors to ensure both end-user usage andutility systems are as efficient as possible.

The OPA allocated targets and budgets to LDCs on October 31, 2014. Hydro One Networks Inc.’s2015-2020 CDM savings target is 1,159 GWh tobe achieved with a budget of $322 million. HydroOne Brampton Networks Inc.’s 2015-2020 CDMsavings target is 255.2 GWh to be achieved witha budget of approximately $67 million. All LDCsmust submit CDM Plans indicating how they willachieve their allocated targets by May 1, 2015using either “Full Cost Recovery” or “Pay-for-Performance” funding models. All CDM programsmust be cost-effective to ensure full cost recovery.LDCs may, at any point, resubmit changes to their CDM Plan for approval by the OPA.

On December 19, 2014, the OEB issued its newConservation and Demand ManagementRequirement Guidelines (the “2015 Guidelines”).The 2015 Guidelines are consistent with theDirective the OEB received on March 24, 2014from the Minister requiring the OEB to take stepsto promote CDM, including amendments to thelicences of electricity distributors and theestablishment of CDM Requirement guidelines.

The 2015 Guidelines are effective January 1,2015 and apply to CDM programs beginningJanuary 1, 2015. Effective January 1, 2015, the OPA merged with the IESO and therefore the 2015 Guidelines refer to the IESO for futureconservation activities since the IESO is nowresponsible for these functions beginning January1, 2015. The CDM Code and April 26, 2012guidelines will continue to apply to all activitiesrelated to the 2011 to 2014 CDM Framework.

5. Advanced Distribution SystemThe ADS project is an initiative aimed at testing,validating and implementing modern technologiesto enable distributed generation integration,improve reliability and operations, and enhanceoutage restoration and network planning. The ADSproject is a key element of our company’s vision of continuous innovation to ensure a modern,flexible, and advanced distribution system for ourcustomers in the future. We did not seek anyfunding in 2012. OM&A in the amount of $15.6 million was approved by the OEB for 2013and it was agreed that capital costs can continueto be recorded in the variance account as long asthey are consistent with the recommendations ofthe Smart Grid Advisory Committee. In 2013, aspart of Hydro One’s 2014 funding request, theOEB agreed with the prudence of ADS relatedexpenditures to the end of 2013 and approvedadditional 2014 funding of $29 million in capitaland $15.8 million in OM&A. Recovery of costs inthe variance account is being sought in the currentHydro One distribution rate application for 2015to 2019 rates.

In 2012, Hydro One Networks Inc. madesignificant progress in building out the trial areawith modern technologies and installing a centralcontrol system (Distribution Management System)


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at the OGCC. In 2013, the majority of the buildphase was completed, with the remainder plannedfor completion in early 2015. End-to-end solutionvalidation, to confirm design decisions andprovide real time experience with the components,has delivered the foundation for distributionautomation and distributed generation integration.

Work is also underway on pilot projects, whichinvolve leveraging the Distribution ManagementSystem solution to support voltage optimization,utilizing the Smart Meter Advanced MeterInfrastructure network capabilities to supportoutage detection and restoration, as well as theftdetection. These initiatives will continue in 2015and will be augmented with additional projectsthat build on the objectives of delivering customerbenefits and operational efficacies.

On June 27, 2013, the OEB announced thecreation of the Smart Grid Advisory Committee to provide it with on-going assistance on emergingADS issues as it proceeds with facilitating thedevelopment and implementation of ADS inOntario. Hydro One is a member of the SmartGrid Advisory Committee.

6. Smart Meters The Electricity Act originally provided theframework for the installation of smart meters in

all homes and small businesses in Ontario byDecember 31, 2010. LDCs are accountable forthe deployment of smart meter infrastructure andrelated technology for communications to meetminimum requirements as defined in theregulations. The Province has appointed the IESOto be the entity whose mandate includes thestorage of all provincial hourly data. Distributorsare also accountable for the implementation ofTOU pricing.

Hydro One Networks Inc. and Hydro OneBrampton Networks Inc. have installedapproximately 1.4 million smart meters as of theend of 2014 and have completed development of systems and required integration to supportTOU rates. These meters are capable of measuringand reporting usage over predetermined periods,being read remotely, and, when combined withthe systems being provided by the IESO, ofproviding customers with access to informationabout their electricity consumption on a dailybasis. Smart meters are regarded by the Provinceas an integral means of promoting a culture ofconservation.

At the end of 2014, Hydro One completed all material activities associated with theimplementation of smart meters and transitioned to regular sustainment maintenance activities.Hydro One Networks Inc. has installedapproximately 1.2 million smart meters as of theend of 2014 and has commissioned the newsystems, made changes to legacy systems, andcompleted the required integration with the IESO’sMeter Data Management Repository, to implementTOU pricing.

Throughout 2014, Hydro One continued tooptimize the smart meter communication networkthrough a number of firmware and softwareupgrades and communication network equipment

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optimization to enhance network performancelevels.

In this regard, Hydro One Networks Inc. hastransitioned approximately 1.1 million customersto TOU pricing as of the end of 2014. Hydro OneBrampton Networks Inc. completed its transition to TOU pricing in 2012. These customers nowconsume power and receive bills based on RPPTOU prices and have access to their hourly usageinformation via the internet as soon as the dayafter it is consumed.

Hydro One Brampton Networks Inc. completed itssmart meter plan and its transition to TOU pricingby the end of 2012 and submitted an applicationto the OEB on December 14, 2012, for the finaldisposition of smart meter costs. As part of HydroOne Brampton Networks Inc.’s application, thecompany requested a smart meter disposition riderand a smart meter incremental revenuerequirement rider.

On April 25, 2013, Hydro One BramptonNetworks Inc. received approval from the OEB for the final disposition of the smart meter deferralaccounts. Hydro One Brampton Networks Inc.received approval for two rate riders; the first rideris for a final disposition amount of approximately$1.9 million. The second rate rider relates to theincremental revenue requirement associated with2013 (eight months) and 2014 (full year) and isestimated at $1 million and $1.5 millionrespectively.

Smart meter expenditures for 2014 were $16.1 million for Hydro One Networks Inc.Planned expenditures in 2015 are expected to be approximately $0.5 million for Hydro OneNetworks Inc.

In September 2012, Hydro One Networks Inc.filed an application with the OEB under section 74 of the OEB Act for an exemption frommandated TOU pricing for certain customers inour service area. These customers are located invery rural and sparsely-populated portions ofHydro One’s service territory where additionalcommunications equipment is required to supportsmart metering. Hydro One Networks Inc.received an exemption from the OEB, effectiveuntil December 31, 2014, from implementingmandatory TOU pricing for customers that arecurrently out of reach of our smart metertelecommunications infrastructure. In December2014, Hydro One Networks Inc. filed anotherapplication to continue the TOU exemption for aperiod of five years for customers in portions ofHydro One Networks Inc.’s service territory wherecommunication capability is inadequate to supportsmart metering. In December 2014, the OEBgranted an interim extension to the TOUexemption which will expire June 30, 2015 or at the final determination of the application. Thewritten proceeding on the matter commenced inthe first quarter of 2015.

Hydro One Networks Inc. replaced a certain typeof installed commercial/industrial grade smartmeter as approximately 0.35% of this class ofmeter has malfunctioned in a manner causingphysical damage to the meter. Approximately17,000 of the affected meters have beensuccessfully replaced.

Hydro One Brampton Networks Inc. is replacing acertain type of smart meter for its small commercialand industrial customers. Since the installation ofthese meters, approximately 0.26% of this class ofmeter have malfunctioned in a manner causingphysical damage to the meter. Hydro OneBrampton Networks Inc. will be replacing thesemeters beginning in January 2015.

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Our Telecommunications Business Our telecommunications business, which is carriedon by our subsidiary Hydro One Telecom Inc.,markets dark and lit fibre optic capacity totelecommunications carriers and commercialcustomers with broadband network requirements.Hydro One Telecom Inc. leverages its affiliatedcompany’s telecommunications assets and deliversstate-of-the-art, broadband telecommunicationssolutions to carriers, independent serviceproviders, and large public and private sectorcustomers.

Hydro One Telecom Inc. is registered with the Canadian Radio-television andTelecommunications Commission as a non-dominant, facilities-based carrier, providingbroadband telecommunications services inOntario with connections to Montreal, Quebec;Buffalo, New York; and Detroit, Michigan. Its fibrenetwork spans over 6,000 kilometres. Hydro OneTelecom Inc. provides telecommunication systemsmanagement and related functions which arerequired for our transmission and distributionbusiness including corporate data and voicenetworks and smart meter and ADS operations. In addition, it has recently assumed accountabilityfor telecom engineering design services which willallow it to optimize its delivered services.

Other Business ParticularsThe following is a summary of material mattersand issues relating to our business. In this sectionwe discuss the following:1. Employees2. Compensation3. Pension Plan4. Outsourcing Arrangements 5. Environmental6. Health and Safety7. Insurance8. Legal Proceedings and Regulatory Actions9. Financial10. Cornerstone

1. Employees At the end of 2014, our Hydro One Networks Inc.subsidiary had 5,145 regular (i.e., permanent)employees comprised of 584 non-representedexecutive and managerial staff, 3,271 employeesrepresented by the PWU and 1,290 employeesrepresented by the Society. Hydro One Inc.,Hydro One Remote Communities Inc. and HydroOne Telecom Inc. together have 224 employees intotal. Hydro One Inc., Hydro One Networks Inc.,Hydro One Remote Communities Inc. and HydroOne Telecom Inc. also had 2,211 non-regular(i.e., temporary) employees comprised of 29executive and managerial staff, 174 employeesrepresented by the PWU, 54 employeesrepresented by the Society, 599 employeescovered by Appendix “A” of the PWU agreement(PWU Hiring Hall) and 1,355 employeesrepresented by a combination of the CanadianUnion of Skilled Workers (an electrical tradeunion) and the construction building trade unionswhich are of relevance to Hydro One becausethey have collective agreements with the ElectricalPower Sector Construction Association (“EPSCA”).Hydro One maintains membership in EPSCA, anemployers’ association that bargains collectiveagreements on behalf of its membership. Hydro

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One’s membership in EPSCA is ongoing. OurNorfolk Power Distribution Inc. subsidiary had 41 regular employees comprised of 13 non-represented management staff, and 28 employeesrepresented by the PWU, and 3 non-regular (i.e., temporary) employees. In addition, ourHydro One Brampton Networks Inc. subsidiaryhad 58 non-represented regular staff, 108 activeemployees represented by UNIFOR (previously the Canadian Auto Workers), 43 employeesrepresented by the International Brotherhood ofElectrical Workers and 23 contract staff.

On March 31, 2014, Hydro One BramptonNetworks Inc. and UNIFOR reached aMemorandum of Agreement for a renewalcollective agreement. The term of the renewalcollective agreement is from April 1, 2014 toMarch 31, 2017. On May 5, 2014, Hydro OneBrampton Networks Inc. and the InternationalBrotherhood of Electrical Workers reached aMemorandum of Agreement for a renewalcollective agreement. The term of the renewalcollective agreement is from April 1, 2014 toMarch 31, 2017. The collective agreementbetween Hydro One Inc. and the Canadian Unionof Skilled Workers expired on April 30, 2014 anddiscussions are on-going. The collective agreementbetween Hydro One Inc. and the PWU expires onMarch 31, 2015. See “Risk Factors – LabourRelations Risk”.

We expect to continue to focus initiatives on the attraction and retention of staff and themaintenance and development of the skills andcompetence of all our employees to foster aproductive work environment and to manage theimpacts of anticipated retirements. A key goal ofours is to manage the demographics of ourworkforce, an issue which we are monitoring, as the average age of our work force is over 42 years with approximately 12 years of service.In response to this issue, a comprehensivemanagement development program, as well as a succession planning program, have beenimplemented. See “Risk Factors – Work ForceDemographic Risk”.

2. Compensation The Strong Action for Ontario Act (BudgetMeasures), 2012 was passed on June 20, 2012.This statute amends the Broader Public SectorAccountability Act, 2010 and implements newwage restraint measures on executivecompensation. The compensation restraintmeasures affect defined, designated executives,primarily senior management, at Hydro One andthe restraint measures continue under thislegislation until the Province proclaims that therestraint measures have expired, which cannot bebefore the fiscal year in which the Province nolonger has a deficit.

In December 2014, Bill 8, An Act to PromotePublic Sector and MPP Accountability andTransparency by Enacting the Broader PublicSector Executive Compensation Act, 2014 andAmending Various Acts, was passed. Schedule 1to Bill 8 is the Broader Public Sector ExecutiveCompensation Act, 2014, which will come intoforce when it is proclaimed. The passing of thislegislation has the effect of giving the governmentthe authority to create comprehensivecompensation frameworks for certain employers in


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the broader public sector, including our company,and would implement a number of measures toenhance accountability and transparency in thegovernment and the public sector. The legislationapplies to certain defined, designated executives,primarily senior management, at Hydro One. See “Statement of Executive Compensation”.

3. Pension PlanWe established a defined benefit registeredpension plan on December 31, 1999. Hydro OneInc. manages and invests the assets and liabilitiesof the pension fund as plan sponsor andadministrator of the plan. As of December 31,2014, there were 5,324 active members and7,682 pensioners and disabled and deferredmembers. In accordance with the requirements of the Pension Benefits Act (Ontario), an actuarialvaluation prepared as at December 31, 2013 was filed with the Financial Services Commissionof Ontario in June 2014. See “Risk Factors –Pension Plan Risk”.

Effective December 31, 1999, we established the Hydro One Inc. Supplementary Pension Plan to provide supplementary pension benefits. OnOctober 30, 2001, this plan was amended torequire the establishment of a trust for the purpose of creating security for payment of thesupplementary pension benefits provided fortherein. This trust was constituted as a RetirementCompensation Arrangement under the provisionsof the Income Tax Act (Canada), and security was issued in the form of a letter of credit.

4. Outsourcing ArrangementsThe current outsourcing services agreement withInergi LP (an affiliate of Capgemini Canada Inc.),entered into as of December 28, 2001 (“2001Inergi Agreement”), expires on February 28,2015. On November 28, 2014 we entered intoan agreement through our subsidiary Hydro One

Networks Inc., with Inergi LP, the service providerselected through a competitive procurementprocess which began in 2013, for second-generation back office and IT outsourcing servicesfor a term of 58 months, commencing March 1,2015 and continuing to December 31, 2019.Under this agreement, Inergi LP will provide uswith settlements, source to pay services, payoperations services, information technology and finance and accounting services.

Coincident with the conclusion of negotiations on the back office and IT outsourcing services, we reached agreement with Inergi LP to provide us with second-generation customer serviceoperations outsourcing services for a fixed periodof three years beginning March 1, 2015, toFebruary 28, 2018. The back office and IToutsourcing and the customer service operationsoutsourcing arrangements with Inergi LPcommencing in 2015 are collectively referred to as the “Inergi Agreement”.

The Inergi Agreement guarantees aggregateminimum revenue to Inergi LP of approximately$326 million over the terms of the agreement; and provided that we purchase a minimum volumeof services from Inergi LP equivalent to theguaranteed revenue, we have the freedom topurchase additional volume of services elsewhere.

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Fees are subject to decreases based on optionalexternal benchmarking analyses. CapgeminiNorth America, Inc. has provided a financialguarantee and Capgemini U.S. LLC has provideda performance guarantee of the obligations ofInergi LP. The Inergi Agreement provides forcertain rights of early termination for convenienceor upon the occurrence of specified businessevents. In such cases, we are obliged under theagreement to pay specified termination fees. See“Risk Factors – Risk Associated with OutsourcingArrangements”.

On September 15, 2014, we entered into anagreement, through our subsidiary Hydro OneNetworks Inc., with Brookfield Johnson ControlsCanada LP (the “Brookfield Agreement”), theservice provider selected through a competitiveprocurement process, for facilities managementservices for a term of ten years, effective January1, 2015 to December 31, 2024, with the optionto renew for an additional term of three years.Over the term of the contract, Hydro OneNetworks Inc. will transition the facilitiesmanagement of all of our facilities. Under theBrookfield Agreement, Brookfield Johnson Controls Canada LP will provide us with facilitiesmanagement and execution of certain capitalprojects as may be deemed to be required byHydro One Networks Inc.

The Brookfield Agreement has a value of up toapproximately $658 million over the ten year term of the agreement, including the facilitiesmanagement portion of the contract, plus avariable amount of capital work depending on theneeds that may arise as determined by Hydro OneNetworks Inc., with no minimum capital workguarantee. The Brookfield Agreement provides for rights of early termination for convenience and upon the occurrence of specified businessevents. In such cases, we are obliged under the

agreement to pay specified termination fees. See“Risk Factors – Risk Associated with OutsourcingArrangements”.

5. Environmental Although primarily regulated at the provinciallevel, jurisdiction over the environment is sharedby Canadian federal, provincial and localgovernments. As a result, we are subject toextensive federal, provincial and local regulationrelating to the protection of the environment thatgoverns, among other things, environmentalassessments, discharges to water and land andthe generation, storage, transportation, disposaland release of various hazardous substances. See “Risk Factors – Environmental Risk”. Estimatedenvironmental liabilities are reviewed annually ormore frequently if significant changes in regulationor other relevant factors occur. Estimated changesare accounted for prospectively.

Health, Safety and Environmental ManagementSystem Hydro One has an environmental policy that inpart states: We will identify, assess and managesignificant environmental risks and integrateenvironmental considerations into our decisions.As part of our health, safety and environmentalmanagement system, Hydro One has anenvironmental management system designed torealize our environmental policy by identifyingand assessing the environmental effects of ouroperations and facilities and to aid in thecontinual improvement of our environmentalperformance. The management system includes anannual risk assessment of significant environmentalaspects such as PCBs and our land assessmentand remediation program. This environmentmanagement system has identified and assessedhazards and risks, and controls have beenimplemented to mitigate significant risks. Wecontinually update our environmental management


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system to reflect organizational changes andprogress in achieving our environmental goals.

Permits and Approvals We are required to obtain and maintain specifiedpermits and approvals from federal, provincialand local authorities relating to the design,construction and operation of new and upgradedtransmission and distribution facilities. Examplesinclude EA approvals, permits for facilities to belocated in parks or other regulated areas, watercrossing permits, and approvals to discharge toair and water. Although the majority of the permitsand approvals are under provincial legislation,some projects may require environmentalapprovals from the federal government. Examplesinclude Fisheries Act authorizations, NavigableWaters Protection Act authorizations andCanadian Environmental Assessment Actapprovals. Canadian Environmental AssessmentAct approvals may apply to projects located onfederally-regulated lands, including First Nationreserve lands and federal parks. Interties withneighbouring utilities in other provinces and statesalso require federal approval and will be subjectto federal regulatory review.

The development of new transmission facilities and major expansions require approvals under the EA. Generally, larger projects are subject tothe individual environmental assessment process. The majority of approvals fall under a classenvironmental assessment process which providesfor more streamlined approvals. The scope, timing and cost of environmental assessments aredependent on the scale and type of project, thelocation (urban versus rural), the environmentalsensitivity of affected lands and the significance of potential environmental effects.

Regulation of Releases Federal, provincial and municipal environmental

legislation regulates the release of specificsubstances into the environment through theprohibition of discharges that will or may have anadverse effect on the environment. Spills and leaksof substances occur in the course of our normaloperations. Accordingly, we have spill, leakprevention and leak mitigation programs involvingthe testing, replacement, repair and installation of containment systems including re-gasketting of transformers and sulphur-hexafluoride filledequipment. In addition, we have an emergencyresponse capability which we believe is sufficientto minimize the environmental impact of spills and to comply with our legal obligations.

Hazardous Substances We manage a number of hazardous substances,such as PCBs, herbicides and wood preservatives.In addition, some facilities have substancespresent which are designated for special treatmentunder occupational health and safety legislationsuch as asbestos, lead and mercury. We haveenvironmental management programs in place todeal with PCBs and herbicides.

PCB Under Environment Canada regulations introducedin 2008, all equipment and materials with PCBs in concentrations of 500 parts per million (ppm) or more, except pole-top transformers and theirpole-top auxiliary electrical equipment and lightballasts, were to be disposed of by the end of2009. Hydro One has applied for and received a permit from Environment Canada to allow HydroOne to extend the time within which to dispose ofspecific equipment in stations known or potentiallycontaminated with PCBs in stations withconcentrations of 500 ppm or more (the latestdate being December 31, 2014). PCBs inconcentrations of 50 ppm or more in pole-toptransformers, pole-top auxiliary electricalequipment, light ballasts and other electrical

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equipment are required to be disposed of by the end of 2025. In addition, liquids withconcentrations of two ppm or more that have been removed from equipment cannot be reused.

In April 2014, amendments to the PCB regulationswere enacted and came into force January 1,2015. The amendments among other things,extend the end-of-use deadline for Hydro One’sPCBs in concentrations of 500 parts per million ormore from December 31, 2014 to December 31,2025.

To date, approximately 97.7% of Hydro One’sPCBs have been safely destroyed. PCBcontaminated waste material is transported to aprovincially-approved destruction facility wherethe PCB waste is either incinerated or chemicallydestroyed. The remaining 2.3% is found inextremely low concentrations (typically less than500 ppm) in small volume electrical equipmentthat is geographically dispersed across Ontario.Hydro One estimates that approximately 258,000pieces of equipment will require inspection,testing, retrofilling, replacement and/or disposalin order to comply with the current regulations.

Our best consolidated estimate of Hydro One’sremaining non-capital future expenditures tocomply with the current PCB regulations is about$195 million. After consideration of our 2014spending of $5 million, this represents a decreasefrom the prior year of about $42 million in ourestimated future expenditures to meet federalregulatory requirements with respect to PCBs. As a result of this updated estimate of the future non-capital expenditures to comply with existing PCBregulations, we decreased our environmentalliability by approximately $33 million in 2014.This liability represents the present value of ourestimated future non-capital expenditures. Weanticipate that these future expenditures will be

recoverable in future electricity rates, anequivalent reduction of about $33 million has alsobeen recorded to the offsetting regulatory asset,reflecting the continued probability of futurerecovery of these expenditures from customers.

Asbestos As a result of regulatory changes, we expect toincur future expenditures to identify, remove anddispose of asbestos-containing materials installedin some of our facilities. In 2010, the Companycompleted a study with the aid of an externalexpert consultant to estimate the futureexpenditures required to remove asbestos prior to facility demolition. Based on this study, theCompany has recorded a $9 million liability inrespect of this obligation as at December 31,2014, based on the net present value of theCompany’s best estimate of the total futureexpenditures of $18 million to complete itsasbestos removal activities. We anticipate thatsuch future expenditures will be recoverable infuture electricity rates.

Herbicides We use herbicides for the control of incompatiblevegetation on transmission and distribution rights-of-way and for total vegetation control on stationsites. We currently use an integrated vegetationmanagement approach toward vegetationmanagement using manual and mechanicalcutting, together with the use of herbicides. ThePesticides Act (Ontario) and associated Regulation63/09 include a public works exception underwhich herbicide application is allowed for utilityprograms. We are working with both governmentand external agencies to ensure we are incompliance. As indicated below, the historical use of herbicides has contaminated some of ourproperties and some nearby properties.

On March 11, 2011, the Ministry of NaturalResources created an independent fact-finding

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panel to review the past use of 2,4,5-T herbicidein Ontario. The panel investigated the use of2,4,5-T by the Province’s ministries and agenciesand examined whether exposure to 2,4,5-Therbicide may have potential health impacts. The findings of the panel, which were released tothe public on June 13, 2013, assessed potentialhealth impacts of historical exposure scenarios.The Workplace Safety and Insurance Board hasput in place a special adjudication team to handleclaims arising out of potential exposure to 2,4,5-T.

Wood Preservatives Wood preservatives are used in wood poles toprotect the wood against fungi and insects andthereby extend their service lives. In the past, wehave used poles which were impregnated withpentachlorophenol. We respond to contaminationproblems related to pentachlorophenol migrationas they arise.

Land Assessment and Remediation Hydro One Networks Inc. has a voluntary landassessment and remediation program in place toidentify and, where necessary, remediatehistorical contamination that has resulted from past(Ontario Hydro) operational practices and uses ofcertain long-lasting chemicals, at our transmissionand distribution stations and service centres. OurHydro One Remote Communities Inc. subsidiaryalso has a similar program in place for generatingstations it owns or operates. These programsinvolve the systematic identification of anycontamination at or from these facilities and,where necessary, the development of remediationplans for our properties and affected adjacentprivate properties. Potential contaminants includeinsulating oils, substances previously used forvegetation control such as arsenic trioxide, andother substances such as fuel oil, gasoline, PCBs and wood preservatives such aspentachlorophenol. Phase I ESAs have been

completed for most of the transmission stations,service centres and remote generating stations.Screening level Phase I ESAs were undertaken atdistribution stations given their large number andsimilar operating history. Site screening involvingon-site soil sampling at the areas of greatestpotential for contamination has been undertakenat the majority of these distribution sites.

Hydro One has identified approximately 1,550properties, where historical contamination mayhave occurred, comprised of approximately:• 281 Transmission and Switching Stations; • 57 Transmission Junctions with gravel cover; • 1005 Distribution and Regulating Stations; • 182 Service Centres and associated pole yards;

and • 25 Remote Diesel Generating Stations.

The number of sites where at least one soil orgroundwater sample on site was found to beabove the Ontario Ministry of the Environmentstandards (of at least one substance of concern) is approximately 943. We have completed theclean-up or mitigated risk related to 471 sites ofthe 628 identified priority sites. We havedeveloped a risk-based property ranking system to assist in establishing priorities for Phase II ESAsampling. This system is supplemented with visualinspections of the sites and nearby receptors.Remediation and/or risk management is occurringbased on Phase II ESA results and discussions with affected property owners and regulatoryauthorities. The Ontario Ministry of theEnvironment (at the local and head office level)and local health departments/medical officers of health are actively involved in the program.Further work may be required in the event we sell or decommission any of these sites.

Future consolidated expenditures related to Hydro One Networks Inc.’s land assessment and

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remediation program are currently estimated atapproximately $57 million. These expendituresare expected to be spent over the period ending2023. The consolidated expenditures on thisprogram (including Hydro One RemoteCommunities Inc.) for 2014 were approximately$13 million.

Electric and Magnetic FieldsElectric and magnetic fields exist whereverelectricity is used or transmitted, including electricpower facilities such as transmission anddistribution lines and substations, and within every building in Ontario that has electricalservice. National and international healthagencies, including the World HealthOrganization, have reported that the evidence isinsufficient to conclude that the low levels of thesefields in our communities have adverse effects onpeoples’ health. Health Canada “does notconsider that any precautionary measures areneeded regarding daily exposures to electric andmagnetic fields at extremely low frequency. Thereis no conclusive evidence of any harm caused byexposures at levels found in Canadian homes andschools, including those located just outside theboundaries of power line corridors.” We sponsorresearch and monitor national and internationaldevelopments with respect to electric andmagnetic fields. Public exposures to electric andmagnetic fields are not currently regulated byeither the federal or provincial governments andwe are not aware of any current plans to regulatepublic exposures to electric and magnetic fields bythese levels of government.

6. Health and Safety Hydro One considers health and safety to be ofparamount importance in the operation of itsbusiness and continues to maintain top quartileperformance in key areas as well as to develop,implement and maintain progressive programsand initiatives. We are committed to creating andmaintaining an injury-free workplace andmaintaining public safety, with concentrated focuson the elimination of serious injuries or “near-misses” which have the potential to cause seriousinjuries. We have developed and are continuingto develop a number of programs and initiativesfor accident prevention and to minimize the risk of injury to the public associated with our facilitiesand operations. Policies are in place for bothemployee health and safety and public safety.

Measures are in place to monitor workplaceinjuries. These measures are monitored bymanagement and by the Health, Safety andEnvironment Committee of the Board.Management compensation is tied, in part, tosuccess in achieving annual health and safetyperformance targets. An effective early and safe

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1 E.g., World Health Organization (WHO). Electromagnetic Fields and Public Health. Fact sheet N°322 June 2007; Extremely LowFrequency Fields. Environmental Health Criteria, Vol. 238, Geneva, WHO, June 2007.

2 Health Canada. It’s Your Health: Electric and Magnetic Fields from Power Lines and Electrical Appliances. Updated November 2012.www.hc-sc.gc.ca/hl-vs/alt_formats/pdf/iyh-vsv/environ/magnet-eng.pdf.

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return to work program has allowed us to ensurethat, when injuries occur, employees recover andreturn to the workplace as soon as possible.In 2014, we continued with the Journey to Zerosafety initiative that was started in 2009. Thisinitiative compares our approach to health andsafety management with world class companies to see where gaps might exist. Opportunities for improvement have been prioritized andimplementation continued during 2014. It isexpected to continue in future years.

During 2014, there was a focus on the followingareas: Journey to Zero initiatives, improving health and safety risk assessment and data mining,application of safety by design, effectiveinvestigation and corrective actions, healthyworkplace (mental health), job planning,slip/trip/fall prevention best practices, andenvironment management system improvements.

Hydro One has integrated the management ofhealth and safety into a single health, safety andenvironment management system. The successfulOHSAS 18001 registration of the Health andSafety and Environment Management System in2013 allows Hydro One to enhance our health & safety performance through a structuredapproach that drives continual improvement.Effective risk assessment and management are key elements to the successful minimization of risk and safety performance improvement. Withinthe organization, hazards and risks have beenidentified and assessed and controls have beenimplemented to mitigate significant risks.

7. Insurance We maintain insurance coverage, includingliability, all risk property and boiler and machineryinsurance. We also maintain other insurancecoverage that is required by provincial statute,which covers automobile liability, pesticide liability

and aircraft liability. We do not have insurance fordamage to our transmission and distribution wires,poles and towers located outside our transmissionand distribution stations including damage causedby severe weather, other natural disasters orcatastrophic events or for environmentalremediation costs. See “Risk Factors – Risk ofNatural and Other Unexpected Occurrences”.

8. Legal Proceedings and Regulatory Actions In connection with the reorganization of OntarioHydro, we succeeded Ontario Hydro as a party to various pending legal proceedings relating tothe businesses, assets, real estate and employeestransferred to us. We also assumed responsibilityfor future claims relating to the businesses, assets,real estate and employees acquired by us andarising out of events occurring prior to, as well as after, April 1, 1999. In addition to claimsassumed by us, we are, from time to time, namedas a defendant in legal actions arising in thenormal course of business. There are currently noactions that are outstanding which are expected to have a material adverse effect on our company.

9. Financial We aim to maximize the value of our companywhile maintaining an effective borrowingcapability through stable credit quality anddelivering stable financial returns to ourshareholder.

We remain committed to understanding andstaying abreast of best utility practices in order to execute our business in the most cost effectivemanner possible.

We believe that cost reductions and productivityimprovements can be achieved through the jointmanagement of our transmission and distributionbusinesses, leveraging our enterprise wide SAPsystem and use of next-generation business tools to

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make precision investments in capital and OM&Ato obtain maximum benefit, continuation ofoptimizing our outsourcing arrangements pursuantto which we outsourced non-core functions toInergi LP and the consolidation of our systemoperations functions, as well as facility services to Brookfield Johnson Controls Canada LP.

Annual savings have been achieved in recentyears as a consequence of our focus onoperational excellence, and these savings havelargely been reinvested in our work programs or have offset additional rate pressures. Goingforward, we are continuing to focus on capitalefficiency and workplace productivity.

Hydro One began reporting under U.S. GAAP inthe first quarter of 2012. In 2013, we registeredwith the SEC on Form F-10 and listed medium termnotes on the NYSE. The OEB approved our use ofU.S. GAAP and the Province passed a regulationwhich consequently allowed us to use U.S. GAAPas it better reflects our financial position and isconsistent with comparator companies.

Our subsidiary Hydro One Brampton NetworksInc. has deferred its adoption of modified IFRS tothe year beginning January 1, 2015, as allowedby the Canadian Accounting Standards Board.Hydro One Brampton Networks Inc. will reportunder Canadian GAAP for the year endedDecember 31, 2014.

10. Cornerstone Cornerstone is a four-phased project, whichreplaces IT systems that have reached “end-of-life”.The four phases are as follows:

Phase One implemented the enterprise systemsand functions to support the supply chain, assetmanagement and work management functions andwas completed in 2008.

Phase Two extended the IT system functionalityto replace legacy systems supporting the finance,

reporting, payroll and human resource functionsand was completed in 2009.

Phase Three focused on further optimizationbetween 2011 and 2014, during which time thenew enterprise IT system was expanded to driveadditional business value, improve end-to-endprocess efficiency and improve asset lifecyclemanagement analytics/decisions. CornerstonePhase Three was comprised of engineering designtransformation, asset analytics, business planning,human resources expansion, planning andscheduling, meter management, supply chainexpansion and business intelligence expansion.

The last phase, Phase Four, replaced the legacycustomer information and billing systems thatperform the billing and receivables for ourcompany’s distribution customers (mass market,commercial, industrial, distribution generators).The new system went into service in May 2013.The project entered sustainment mode in 2014.


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As a regulated company, we are subject to variouscontractual arrangements, codes and licenceswhich we describe in more detail in this section.As the OEB approves both the revenuerequirements of and the rates charged by ourregulated businesses, we discuss our current rateorders and rate structures for both our transmissionand distribution businesses.

The Statutory and OperatingFramework

Federal FrameworkWhile most electricity power lines and facilities in Canada fall within provincial jurisdiction, theNEB has jurisdiction over the construction andoperation of international power lines (IPLs) andinterprovincial lines that are designated as beingunder federal jurisdiction (no interprovincial linescurrently fall under NEB jurisdiction). Hydro OneNetworks Inc. owns and operates IPLs with NewYork, Michigan and Minnesota, and is subject to several NEB-issued certificates and permits.According to the NEB Act, any modifications to an IPL require NEB approval.

On December 6, 2012, the NEB issued a generalorder and five amending orders for mandatoryelectricity reliability standards for certain IPLs inCanada. The orders (i) require Hydro OneNetworks Inc., as the owner of such lines, to

comply with specified NERC and NPCC reliabilitystandards, (ii) mandate certain reportingrequirements, and (iii) contain provisions for IPLowners to seek exemptions. On March 6, 2013,Hydro One Networks Inc. submitted to the NEB a declaration of compliance and a request forindefinite exemptions from a list of standards thatdo not apply to Hydro One Networks Inc. or tothe IPLs it owns. On November 13, 2013, theNEB granted Hydro One Networks Inc.'sexemption requests, with some minor exceptions.

Ontario FrameworkThe Electricity Act and the OEB Act primarilyestablish the broad legislative framework forOntario’s electricity market. The Electricity Actsets out the fundamental principles of Ontario’selectricity industry, enabling open and non-discriminatory access to transmission anddistribution systems. The OEB Act provides theOEB with the jurisdiction and mandate to regulateOntario’s electricity market.

The OEB provides a framework for the review of electric utilities’ distribution and transmissionrevenue requirements so that rates may beestablished based on historical average orforecasted needs. See “Regulation – Rate Ordersand Related Issues for Hydro One’s Businesses –Distribution – Current Rate Orders and DistributionRate Structure”.

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Hydro One’s transmission and distribution businesses are primarily regulated by theOEB and the NEB. In this section, we discuss the regulatory impact on our transmissionand distribution businesses. We provide a general overview of the federal andprovincial framework to which we are subject and a brief introduction to the regulatoryprocess in Ontario.

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The Ontario Regulatory ProcessThe major participants in the regulatory processare as follows: the regulated entity, namely Hydro One Networks Inc., Hydro One BramptonNetworks Inc., or Hydro One Remote CommunitiesInc.; OEB staff; and intervenors. Intervenors areparties interested in the outcome of a rate case,such as consumer groups and other electricutilities.

A review process begins when the regulated entityfiles an application to request a change in rates,approval of leave to construct, change inownership, or when the regulator determines on its own initiative to review the regulated entity’srates. A hearing is announced, and the regulatedentity makes its submission by filing what is knownas “prefiled evidence”. Intervenors and theregulator’s staff may also file evidence. Any partyto the hearing may then pose interrogatories(requests for information) to other parties whohave filed evidence.

The next step may be an “issues day” to articulatethe items that are at issue in the hearing, and theremay also be a motion to the regulator to determinethe scope of the hearing, if scope is an issue. Afterthe preceding steps, the parties may attempt tonegotiate a settlement or partial settlement. Theissues that have not settled go to a hearing, whichmay be either written or oral. After the completionof the hearing, the regulator has up to 60 days toissue a decision with reasons. In the case of rateproceedings, the decision often requires theapplicant to submit a draft rate order that is basedon the regulator’s decision. The regulator thenissues its final rate order by either approving thedraft rates or making revisions to them.

Contractual Arrangements, Codes and Licences

Operating Agreement with the IESOUnder the Electricity Act, the IESO is required toenter into agreements with transmitters giving it the authority to direct the operations of thetransmitters’ systems. Our operating agreementwith the IESO, which sets out the specificresponsibilities of both parties relating to theprovision of transmission service, extends untilDecember 31, 2019.

By contrast, the distribution portion of Ontario’snetwork is not directed by the IESO and remainssubject to the operational control of LDCs inaccordance with the regulatory framework.

Hydro One’s Relationships with Other MarketParticipants Generators, LDCs and customers directlyconnected to our transmission system must enter into agreements with us to ensure reliableconnection service in conformity with the TSCestablished by the OEB.

Some market participants, such as generators andlarge load customers embedded within distributionsystems, are supplied from the wholesale marketthrough lines and facilities that are defined ordeemed by the OEB as “distribution” and ownedby LDCs. At a minimum, under the Electricity Act,LDCs must provide non-discriminatory access foreligible generators and customers to the wholesalemarkets administered by the IESO. The LDCs must advise the IESO of any conditions in theirdistribution system that may affect the ability ofembedded generators and loads to participate inthe broader IESO administered markets.

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Electricity Industry Codes The OEB has issued and in some cases amendedseveral codes that govern the operation of OEB-licensed entities in Ontario. These codes includethe Affiliate Relationships Code for ElectricityDistributors and Transmitters, the Standard SupplyService Code, the TSC, the DSC, the RetailSettlement Code, the Electricity Retailer Code ofConduct, the Smart Sub-Metering Code and theCDM Code.

On August 26, 2013, the OEB issuedamendments to the TSC and the DSC. Theseamendments support the recommendation of thePlanning Process Working Group, of which HydroOne Networks Inc. is a member, for the move to amore structured approach to regional infrastructureplanning, leading to the execution of regionalinfrastructure plans. The OEB, at the same time,also issued supplementary proposed amendmentsto the TSC to clarify certain cost responsibilitymatters raised by Hydro One Networks Inc.,specifically, the ability of transmitters to pool-fundsome connection costs. On October 21, 2013, theOEB also amended the OPA’s licence to supportthe new regional planning process. Hydro OneNetworks Inc. expects the TSC and the DSCamendments will further promote cost-effectivedevelopment of electricity infrastructure (processand methodology) through coordinated regionalplanning and clearer definitions of costresponsibilities.

In May 2012, the OEB announced a consultationprocess on policy review of micro-embeddedgeneration connection issues. The scope of theconsultation includes the “appropriateness oftimelines in the DSC”. In June 2013, the OEBissued its final amendments to the DSC for micro-embedded generation. The DSC changes, effectiveas of June 13, 2013, included clarifications

regarding timelines, which grant more time toprocess indirect connections that require a site visit. The OEB agreed with Hydro One’ssuggestion to fully mirror micro-embeddedgenerator connection timelines with those for load customers. Hydro One has now achievedcompliance with the requirements of the DSCregarding micro-embedded generator connectors.

In May 2014, the OEB adopted two moreamendments to the DSC. One amendment governs the relationship between distributors and unmetered load customers. The secondamendment stipulates the requirement for adistributor to install an interval meter on anyinstallation that is forecast to have a monthlyaverage peak demand during the calendar year of over 50 kW.

These codes and requirements prescribe minimumstandards of conduct and standards of service for transmitters, distributors, smart sub-meteringproviders and/or retailers in the electricity market.These codes are available on the OEB website atwww.ontarioenergyboard.ca.

Electricity Industry Licences Hydro One Networks Inc.’s transmission anddistribution licences were issued in 2003 and2004, respectively. The licences for all of ourregulated businesses have a 20-year term andincorporate reporting and record-keepingrequirements in accordance with the OEB’sElectricity Reporting and Record KeepingRequirements. The GEA amended our licences toaccommodate the connection of renewable energygeneration facilities and implementation of the ADS.

The details of our transmission and distributionlicences are found in Appendix “C”.

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Rate Orders and Related Issues for Hydro One’s Businesses The OEB approves both the revenue requirementsof and the rates charged by our regulatedbusinesses. The rates are designed to permit ourbusinesses to recover the allowed costs and toearn a formula-based annual rate of return on our common equity by applying a specified equity risk premium to forecast interest rates on long-termbonds.

The term “utility rate base” refers to the investmentin regulated operations, consisting of gross plant(property, plant and equipment) in service, lessaccumulated depreciation, plus necessary workingcapital and in general excluding construction workin progress. Utility rate base is used to determinethe capital structure for our regulated businesses,enabling a determination of approved financingcharges and return on common equity for them.

A. Transmission

Current Rate Orders and Review of the ExistingTransmission Rate StructureHydro One Networks Inc.’s transmission rates are determined through Uniform TransmissionRates, which are based on the fully allocated costassociated with providing each of the followingthree transmission service elements:

• Network services – the transmission network is the integrated part of our high voltagetransmission system that is shared by all usersand includes all 500 kV facilities, and the 230 kV and the 115 kV facilities that can beclassified as commonly used;

• Line connection services – connection facilitiesare the radial parts of our high voltagetransmission system, which are dedicated toserving a single customer or generator or a

group of customers or generators. Transmissionline connection facilities are the radial highvoltage transmission lines connecting thetransformer to the network; and

• Transformation connection services – thetransformation connection assets consist of thehigh voltage transformation facilities that stepdown voltages from transmission levels todistribution levels to supply customers.

In May 2012, Hydro One Networks Inc. submitted a cost of service rate application for its transmission business for 2013 and 2014 forrevenue requirements of $1,438 million and$1,528 million respectively. In November 2012,the OEB approved the rate order for 2013. Thedraft rate order for 2014 was filed in December2013 using an increased revenue requirement of$1,535 million due to the adjusted cost of capitalparameters. The 2014 rate order was approved in January 2014. The approved 2014 revenuerequirement represented a transmission rateincrease of 6.3% in 2014, or 0.5% whenconsidering total bill impact for a typicalresidential customer consuming 800 kWh per month.

In December 2014, Hydro One Networks Inc.submitted its draft transmission rate order thatimplements the OEB’s oral decision acceptingHydro One Networks Inc.’s TransmissionSettlement Agreement on the 2015 and 2016transmission revenue requirement. On January 8,2015, the OEB issued the approved Rate Order.The 2015 base revenue requirement is $1,477.3million (excluding the B2M LP revenuerequirement). This represents an increase on atypical residential customer’s total bill of 0.03%.The 2016 revenue requirement of $1,515.9million (excluding the B2M LP revenuerequirement) will be further updated to reflect

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the OEB’s November 2015 cost of capitalparameters in the 2016 draft rate order.

In October, 2014, B2M LP filed an applicationwith the OEB for an interim transmission rate,effective January 1, 2015, seeking the approvalof a revenue requirement of $41 million in 2015.This rate is equal to the amount included in HydroOne Networks Inc.’s transmission rates for theBruce to Milton transmission line assets, resultingin no change to overall Uniform TransmissionRates. The Interim Rate Order was approved bythe OEB on December 11, 2014. B2M LP wasdirected to file a full cost-of-service application forfinal 2015 transmission rates by April 1, 2015.

BypassBypass occurs when we have invested in theprovision of transmission facilities to a customerwhich then obtains all or part of its transmissionservices in another manner or takes action toavoid its use of our transmission services beforethe rates collected have paid for the investment.Recovery of the remaining costs for the strandedfacilities then necessitates higher transmissionrates from the remaining customers.

In August 2005, following an extensiveconsultation process, the OEB issued a revisedTSC, which implements principles relating totransmission bypass, among other things.

Competition Under the OEB Act, any licensed competitor can apply to the OEB for approval to buildtransmission network facilities in Ontario. TheOEB’s adoption of the Uniform Transmission Rate reduces the financial incentive for customersto seek alternative transmission.

Customers historically had the option to build andown their own transmission connection facilities

and thereby avoid paying our connection charge.Only a few large industrial customers and LDCschose to do so, likely because of the significantcosts of construction. Under the new regulatoryframework, in addition to avoiding our connectioncharge, LDCs that own their transmissionconnection facilities can include these assets intheir rate base and earn a regulated return.Customers will generally, however, continue to have the option to have their new connectionfacilities incorporated within our existingtransmission transformation and line pools or tobuild and own their new connection facility. Weexpect to continue to maintain and restore ourexisting connection assets, as well as bid on theconstruction and ownership of new facilities.

On August 26, 2010, the OEB released its policy entitled “Framework for TransmissionProject Development Plans”. This policy sets out a framework for new transmission investment inOntario by introducing competition fortransmission development through an openprocess.

Facilities Applications Transmission line construction, expansion, orreinforcement greater than two kilometres in length require prior OEB approval under section92 of the OEB Act, as well as environmentalassessment, other approvals, and appropriateconsultation with First Nations and Métiscommunities. This is to ensure a complete reviewof proposed transmission projects. Cost recoveryof approved facilities requires a final approvalfrom the OEB as part of a transmission rateapplication.

In January 2014, the OEB amended thetransmission licence of Hydro One Networks Inc.to develop and seek approval for the expansionfor the Northwest Bulk Transmission Line Project.

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In October 2014, as part of the 2013 LTEP, the OPA directed Hydro One to commencedevelopment according to the scope and timingcontained within the OPA’s letter. Subsequently,the Company applied to the OEB for a varianceaccount to track the project’s development costsfor future recovery. The application is now in theinterrogatory phase.

B. Distribution In December 2010, the OEB initiated acoordinated consultation process for thedevelopment of a RRFE. On October 18, 2012,the OEB issued its report, “A Renewed RegulatoryFramework for Electricity Distributors: APerformance Based Approach”. The reportidentified three rate-setting models available toprovide choices suitable for distributors havingvarying capital requirements: a fourth generationIRM; a custom rate setting; and an annualincentive rate-setting index method. The reportalso provided information on performancemeasurement, continuous improvement andimplementation of the new framework.

In late 2013, the OEB issued its “Report of theBoard on Rate Setting Parameters andBenchmarking under the Renewed RegulatoryFramework for Ontario’s Electricity Distributors”.This report sets out the OEB’s policies andapproaches to the rate adjustment parameters for incentive rate setting for electricity distributors and the benchmarking of electricity distributor total cost performance. It also includes the OEB’sdetermination on rate adjustment parameter valuesfor 2014 incentive rate setting, which were usedto adjust Hydro One Networks Inc.’s 2014distribution rates.

In March 2014, the OEB issued its “Report of theBoard on Performance Measurement for ElectricityDistributors: A Scorecard Approach” setting out

the OEB’s policies on the measures to assess adistributor’s effectiveness and improvement inachieving customer focus, operationaleffectiveness, public policy responsiveness, andfinancial performance to the benefit of existingand future customers. LDCs’ scorecards werepublished on the OEB website on September 25,2014.

Current Rate Orders and Distribution RateStructure

a) Hydro One Networks Inc.In April 2013, Hydro One Networks Inc. filed adistribution rate application under the OEB’s IRM,for rates effective January 1, 2014. In December2013, the OEB issued its final decision on the IRMapplication. The distribution rate for a typicalresidential customer consuming 800 kWh permonth will increase by approximately 2.4% in2014. The total bill impact will be an increase ofapproximately 0.85%.

In December 2013, Hydro One Networks Inc.filed its 2015-2019 distribution custom rateapplication with the OEB, for rates effectiveJanuary 1 of each test year. This application is afive-year custom application which was submittedunder the OEB’s RRFE. It was customized to fitHydro One Networks Inc.’s specific circumstances,which necessitate significant and necessary multi-year investments. We are seeking OEB approvalsfor distribution revenue requirement of $1,415million for 2015, $1,523 million for 2016,$1,578 million for 2017, $1,615 million for2018, and $1,660 million for 2019. If theapplication is approved as filed, the resultingchange to the distribution portion of the bill for atypical residential customer will be approximatelya 1.4% decrease in 2015, 3.8% increase in2016, 2.3% increase in 2017, 1.2% increase in2018, and 2.6% increase in 2019. When

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considering total bill impact, the resulting changewill be approximately a 1.5% decrease in 2015,1.3% increase in 2016, 0.8% increase in 2017,0.4% increase in 2018, and 0.9% increase in2019 for a typical residential customer. Atechnical conference, a settlement conference andan oral hearing took place in the third quarter of2014. In December 2014, the OEB issued aDecision and Interim Rate Order approving the2014 distribution rates as interim 2015 rateseffective January 1, 2015. The OEB alsoapproved the discontinuation of the collection of revenues for the provincially funded portion ofrenewable generation connection investments ofapproximately $20 million per year from ratepayers effective December 31, 2014. A finalDecision and Order from the OEB is anticipated in the first quarter of 2015.

b) Hydro One Brampton Networks Inc. In August 2013, Hydro One Brampton NetworksInc. filed its 2014 third generation IRM electricitydistribution rate application requesting newdistribution rates effective January 1, 2014. On December 5, 2013, the OEB approved Hydro One Brampton Networks Inc.’s request foran increase of 1.4% to its 2013 approved basicdistribution rates, adjustments to transmissionrates, new rate riders for the disposition ofdeferral and variance accounts, a shared taxsavings amount, and an adjustment to the GEAfunding adder. The new rate riders that the OEBapproved relate to Group 1 deferral and varianceaccount balances of approximately $8.3 million to the end of 2012 including projected carryingcharges to December 31, 2013. The OEB alsoapproved Hydro One Brampton Networks Inc.’srequest for a two-year disposition period for theseriders. The impact on the distribution component of the customer’s bill for a typical residentialcustomer with monthly electricity consumption of800 kWh will be a decrease of approximately 59

cents or 2.32%, and a decrease of approximately60 cents or 0.5% on the total bill.

In April 2014, Hydro One Brampton NetworksInc. filed a cost of service rate applicationrequesting distribution rates effective January 1,2015 under rate setting method one; the 4thGeneration Incentive Rate-setting (4th GenerationIR). On December 18, 2014 the OEB issued itsDecision and Order on Hydro One BramptonNetworks Inc.’s 2015 Cost of Service RateApplication and the OEB approved a revenuerequirement of $72.1 million dollars. The OEBalso approved adjustments to transmission ratesand the disposition of balances related to the lostrevenue adjustment mechanism of $0.5 millionand stranded meters of $0.5 million. In additionthe OEB approved a rate rider for the recovery of$5.8 million over a three year period, related tochanges in Hydro One Brampton Networks Inc.’scapitalization policy. The OEB also approved rateriders for the disposition of $1.3 million of group1 and 2 deferral and variance accounts to berecovered over a one year period. The impact onthe distribution component of the customer’s bill for a typical residential customer with monthlyelectricity consumption of 800 kWh will be anincrease of approximately $1.12 or 4.53%, andan increase of approximately $1.89 or 1.58% onthe total bill. On January 15, 2015, the OEBissued its Final Rate Order approving the ratesand riders as submitted by Hydro One BramptonNetworks Inc. in its Draft Rate Order.

c) Hydro One Remote Communities Inc. Hydro One Remote Communities Inc.’s business isexempt from a number of sections of the ElectricityAct which relate to the competitive market. Forexample, Hydro One Remote Communities Inc.continues to apply bundled rates to customers in remote communities. Hydro One RemoteCommunities Inc.’s business is operated on a

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break-even basis. As a result, any net income or loss in the year is recorded in a regulatoryvariance account for inclusion in the calculation of future customer rates.

In September 2012, Hydro One RemoteCommunities Inc. filed a cost of service application for 2013 distribution rates. Theapplication requested an increase of 3.45% to customer rates for generation and distribution and an increase of approximately $7 million to annual rural and remote rate protection. In September 2013, the OEB approved the proposed rate increase and annual rate protection of approximately $32.3 million.

In October 2013, Hydro One Remote Communities Inc. filed an application for 2014distribution rates under the OEB’s IRM. The finalrate increase will be adjusted by the OEB’supdated rate adjustment parameters and HydroOne Remote Communities’ IRM stretch factor,which is currently under review by the OEB. TheOEB approved Hydro One Remote CommunitiesInc.’s application, and effective May 1, 2014, the rates will increase by 1.7%.

In September 2014, Hydro One RemoteCommunities Inc. filed an application for 2015distribution rates under the OEB’s Price CapIncentive. The final rate increase will be adjustedby the OEB’s updated rate adjustment parameters.

Rural and Remote Rate Protection In approving electricity rates for a distributor which delivers electricity to rural or remoteconsumers, the OEB is required to provide rateprotection for prescribed classes of consumers,including those who received rural rate assistanceprior to April 1, 1999, by reducing the rates thatwould otherwise apply.

Since January 1, 2003, the amount of ratereduction for our rural consumers who occupy rural residential premises is $127 million per year less the specific amounts established fordistributors in three former remote communities. In December 2014, the OEB estimated the totalRRRP benefit in 2015 to be $174 million, whichincludes the $127 million payable to Hydro OneNetworks Inc. Any over or under collection of the$174 million will be tracked in a variance account.

Rate Protection and Determination of DirectBenefits to Accommodate Renewable EnergyGeneration Facilities On December 19, 2014, the OEB determined that effective January 1, 2015 the RRRP charge to be collected by the IESO shall remain at 0.13 cents per kilowatt-hour and the RRRP chargebilled to customers by a distributor shall alsoremain at 0.13 cents per kilowatt-hour.

The OEB Act, as amended by the GEA, nowincludes a new mechanism for rate protectionwhereby some or all of the OEB-approved costsincurred by a distributor to make an eligibleinvestment for the purpose of connecting orenabling the connection of renewable energygeneration to its distribution system may berecovered from all provincial ratepayers ratherthan solely from ratepayers of the distributormaking the investment. On December 18, 2014,the OEB granted Hydro One Networks Inc.’srequest to discontinue collection of revenue through the renewable connection funding adder from provincial ratepayers under OntarioRegulation 330/09 made under the OEB Act,effective December 31, 2014.

Ontario Clean Energy Benefit Act As announced in its 2010 Ontario EconomicOutlook and Fiscal Review, the Province

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introduced the Ontario Clean Energy Benefit Act,2010 (the “Clean Energy Act”), which is designedto assist Ontario electricity consumers through thetransition to a cleaner, modern electricity system.Under the Clean Energy Act, eligible residential,farm and small business consumers receivefinancial assistance in the amount of a 10% credit,with respect to the total cost of electricity on theirbills, including tax, effective January 1, 2011, fora five-year period. This benefit is applied to theirelectricity costs for each billing period, andbeginning September 1, 2012, the 10% rebateapplies only to the first 3,000 kWh of electricityconsumed per month.

Connection Cost Responsibility The DSC assigns cost responsibility between adistributor and a generator for connection ofrenewable energy generation facilities. There arethree types of distribution assets associated withthe connection of renewable energy generation:• connection assets, • expansion assets, and • renewable enabling improvements.

Connection asset costs are borne by generators.Distributors are required to fund the following:• all expansion costs identified in a plan,• other generator-requested expansion costs up

to a cap of $90,000/MW per project (thegenerator paying the rest), and

• all renewable enabling improvements.

We have made commitments to connect a number of generators under the terms of variousagreements executed prior to discovering certaintechnical problems with these connections, whichwe could not reasonably have foreseen at the timewe entered into those agreements. The problemshave caused or will cause power quality issues for our customers. Under the DSC, the generationproponents would normally bear the costs ofresolving the connection issues; however the costsare significant and also were not foreseen by thegenerators. Thus, the issue for our company is costrecovery of incremental costs associated withconnecting these generators. We applied to theOEB for an exemption to allow the costs to beincurred and recovered through the rate pool. In December 2010, the OEB decided that weshould incur the costs, record them in deferralaccounts, and apply for recovery in future rateapplications, subject to the provision of evidenceof the reasonableness of the costs incurred. HydroOne Networks Inc. is currently seeking dispositionof the deferral accounts associated withconnecting these generators in its 2015-2019custom rate application.

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We and the Province have entered into amemorandum of agreement relating to certainaspects of the governance of our company.Pursuant to such agreement, in September 2008,the Province made a declaration removing certainpowers from our company’s directors pertaining to the off-shoring of jobs under the 2001 InergiAgreement. In 2011, the Province made adeclaration preventing our company from seekingcost recovery through the regulatory process forthe cost of upgrades required for either Micro FITor Small FIT generators for costs related toinvestment and expenditures made. EffectiveSeptember 30, 2013, the Province made adeclaration regarding the outsourcing of servicescovered by the Inergi Agreement.

Effective December 17, 2014, the Province madea further declaration pursuant to the memorandumof agreement and section 108 of the BusinessCorporations Act (Ontario) regarding theprovision of information, personnel and resourcesto the Premier’s Advisory Council on GovernmentAssets. By way of the declaration and concurrentshareholder resolution, the Province restricted therights, powers and duties of our Board, and at thesame time assumed such rights, powers andduties, with respect to providing the Council, theGovernment or the Ministries and their advisorsand consultants all information, assistance,personnel, resources and reports as and whenrequested and co-operating with thoseGovernment advisors tasked with providingrecommendations on labour relations matters and

pension-related matters. The directors are chargedwith carrying out the intention of the declarationand resolution, including taking such necessarysteps to issue similar declarations and resolutionswith respect to Hydro One Networks Inc. andHydro One Brampton Networks Inc. See “Interest of Management and Others in MaterialTransactions – Relationships with the Province and Other Parties – Memorandum of Agreement”.The Province could mandate the selling of all orpart of our distribution business and this couldhave a material adverse effect on our company.

In 2009, the Province required Hydro One,among other entities, to adhere to certainaccountability measures regarding consultingcontracts and employee travel, meal andhospitality expenses. The Province may require us to adhere to further accountability measures ormay make similar declarations in the future, someof which may have a material adverse effect onour business. Hydro One’s credit ratings maychange with the credit ratings of the Province, tothe extent the credit rating agencies link the tworatings by virtue of Hydro One’s ownership by theProvince.

Conflicts of interest may arise between us and the Province as a result of the obligation of theProvince to act in the best interests of the residentsof Ontario in a broad range of matters, includingthe regulation of Ontario’s electricity industry andenvironmental matters, any future sale or othertransaction by the Province with respect to its

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Ownership by the Province

The Province owns all of our outstanding shares. Accordingly, the Province has thepower to determine the composition of our Board, appoint the Chair, and influence our major business and corporate decisions.


ownership interest in our company, including any potential outcomes arising out of therecommendations of the Ontario DistributionSector Review Panel’s report, the Province’sownership of OPG, and the determination of theamount of dividend or proxy tax payments. Wemay not be able to resolve any potential conflictwith the Province on terms satisfactory to us, which could have a material adverse effect on our business.

Regulatory Risk We are subject to regulatory risks, including theapproval by the OEB of rates for our transmissionand distribution businesses that permit areasonable opportunity to recover the estimatedcosts of providing safe and reliable service on atimely basis and earn the approved rates of return.

The OEB approves our transmission anddistribution rates based on projected electricityload and consumption levels. If actual load orconsumption materially falls below projectedlevels, our net income for either, or both, of thesebusinesses could be materially adversely affected.Also, our current revenue requirements for thesebusinesses are based on cost assumptions thatmay not materialize. There is no assurance thatthe OEB would allow rate increases sufficient tooffset unfavourable financial impacts fromunanticipated changes in electricity demand or in our costs.

The OEB’s new RRFE requires that the term of acustom rate application (distribution business) be a five-year period. There are risks associated withforecasting over a longer period. Changes in theindustry may alter the investment needs or requirechanges to rate setting that could result in asignificant impact on Hydro One’s capability toexecute its plan.

Our load could also be negatively affected bysuccessful CDM programs. We are also subject to risk of revenue loss from other factors, such aseconomic trends and weather.

We expect to make investments in the comingyears to connect new renewable generatingstations. There is the possibility that we could incurunexpected capital expenditures to maintain orimprove our assets particularly given that newtechnology is required to support renewablegeneration and unforeseen technical issues maybe identified through implementation of projects.The risk exists that the OEB may not allow fullrecovery of such investments in the future. To theextent possible, we aim to mitigate this risk byensuring prudent expenditures, seeking from the regulator clear policy direction on costresponsibility, and pre-approval of the need forcapital expenditures.

While we expect all of our expenditures to be fully recoverable after OEB review, any futureregulatory decision to disallow or limit therecovery of such costs would lead to potentialasset impairment and charges to our results ofoperations, which could have a material adverseeffect on our company.

In Ontario, the Market Rules mandate that wecomply with the reliability standards establishedby NERC and NPCC. As a result, we will berequired to comply with FERC’s definition of BESunless we are granted an exception which willallow the application of the new definition in acost-effective manner. Hydro One plans to submitexception applications and will look for recoveryfor costs incurred in meeting the definition in ourrates; however, an adverse decision on anexception of recovery of costs could have anadverse effect on our company.

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Risk of Natural and Other UnexpectedOccurrences Our facilities are exposed to the effects of severeweather conditions, natural disasters, man-madeevents including cyber and physical terrorist typeattacks and, potentially, catastrophic events, suchas a major accident or incident at a facility of athird party (such as a generating plant) to whichour transmission or distribution assets areconnected. Although constructed, operated andmaintained to industry standards, our facilitiesmay not withstand occurrences of this type inall circumstances. We do not have insurance fordamage to our transmission and distribution wires,poles and towers located outside our transmissionand distribution stations resulting from theseevents. Losses from lost revenues and repair costscould be substantial, especially for many of ourfacilities that are located in remote areas. Wecould also be subject to claims for damagescaused by our failure to transmit or distributeelectricity. Our risk is partly mitigated because our transmission system is designed and operatedto withstand the loss of any major element andpossesses inherent redundancy that providesalternate means to deliver large amounts ofpower. In the event of a large uninsured loss wewould apply to the OEB for recovery of such loss;however, there can be no assurance that the OEBwould approve any such applications, in whole orin part, which could have a material adverseeffect on our net income.

First Nation and Métis Claims Risk Some of our current and proposed transmissionand distribution lines may traverse lands overwhich First Nations and Métis have aboriginal,treaty or other legal claims. Although we have a recent history of successful negotiations,engagement and consultation with First Nationsand Métis communities in Ontario, somecommunities and/or their citizens have expressed

an increasing willingness to assert their claimsthrough the courts, tribunals, or by direct action,which in turn can affect business activities. As aresult, there exists uncertainty relating to businessoperations and project planning which could havean adverse effect on our company.

Risk from Transfer of Assets Located on Reserves The transfer orders by which we acquired certainof Ontario Hydro’s businesses as of April 1,1999, did not transfer title to some assets locatedon Reserves. See “Interest of Management andOthers in Material Transactions – Relationshipswith the Province and Other Parties – TransferOrders”. Currently, OEFC holds legal title to theseassets and we manage them until we haveobtained necessary authorizations to complete thetitle transfer. To occupy Reserves, Hydro One musthave valid permits issued by Her Majesty theQueen in the Right of Canada. For each permit,we must negotiate an agreement (in the form of a Memorandum of Understanding) with the FirstNation, OEFC and any members of the FirstNation who have occupancy rights. Theagreement includes provisions whereby the FirstNation consents to the federal Department ofAboriginal Affairs and Northern Developmentissuing a permit. Where the agreement and permitare for transmission assets, Hydro One mustnegotiate terms of payment. It is difficult to predictthe aggregate amount that we may have to pay,either on an annual or one-time basis, to obtainthe required agreements from First Nations. In2014, we paid approximately $0.9 million to FirstNations in respect of these agreements. OEFC willcontinue to hold these assets until we are able tonegotiate agreements with First Nations andoccupants. If we cannot reach satisfactoryagreements and obtain federal permits, we mayhave to relocate these assets to other locationsat a cost that could be substantial. In a limited

number of cases, it may be necessary to abandon


a line and replace it with diesel generationfacilities. In either case, the costs relating to theseassets could have a material adverse effect on ournet income if we are not able to recover them infuture rate orders.

Risk Associated with Information TechnologyInfrastructureOur ability to operate effectively in the Ontarioelectricity market is in part dependent upon usdeveloping, maintaining and managing complexinformation technology systems which areemployed to operate our transmission anddistribution facilities, financial and billing systems,and business systems. Our increasing reliance oninformation systems and expanding data networksincreases our exposure to information securitythreats. We mitigate this risk through variousmethods including the use of security eventmanagement tools on our power and businesssystems, by separating our power system networkfrom our business system network, by performingscans of our systems for known cyber threats andby providing company-wide awareness training toour personnel. We also engage the services ofexternal experts to evaluate the security of our ITinfrastructure and controls. We performvulnerability assessments on our critical cyberassets and we ensure security and privacy controlsare incorporated into new IT capabilities.Although these security and system disasterrecovery controls are in place, there can be noguarantee that there will not be system failures orsecurity breaches. Upon occurrence, the focuswould shift from prevention to isolation,remediation and recovery until the incident hasbeen fully addressed. Any such system failures orsecurity breaches could have a material adverseeffect on our company.

Work Force Demographic Risk By the end of 2014, approximately 17% of our

employees were eligible for retirement and by theend of 2015 up to 21% could be eligible. Thesepercentages are not evenly spread across ourworkforce, but tend naturally to be most significantin the most senior levels of our staff and especiallyamong management and executive staff.Accordingly our continued success will be tied toour ability to attract and retain sufficient qualifiedstaff to replace the capability lost throughretirements and meet the demands of our workprograms. This will be more challenging than inthe past for a number of reasons.

Firstly, we expect the skilled labour market for our industry to be highly competitive in the future:many of our current employees and many of theemployees we are going to be looking for possessskills and experience that will also be highlysought after by other organizations inside andoutside the electricity sector; secondly, a variety of restraints on compensation and benefits formanagement and executive staff (including Bill 8)together with possible pension plan changes, andthe uncertainty attaching to Hydro One’s futuresize and scope as a result of the work of theCouncil, may adversely impact our ability toattract and retain the number and calibre ofpeople we need in these roles.

In order to mitigate the potential effects of thesefactors, we are focused on earlier identificationand more rapid development of staff whodemonstrate the potential to progress quickly,especially those who demonstrate leadershippotential, and on maintaining robust but flexiblesuccession plans for the organization. In additionwe continue to advance our apprenticeship andtechnical training programs to ensure that ourfuture operational staffing needs will be met.

Labour Relations Risk The substantial majority of our employees are

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represented by either the PWU or the Society.Over the past several years, significant effort has been expended to increase our flexibility to conduct operations in a more cost efficientmanner. Although we have achieved improvedflexibility in our collective agreements, including a reduction in pension benefits for Society staff hired after November 2005 similar to a previousreduction affecting management staff andincreased pension contributions for PWU andSociety staff, we may not be able to achievefurther improvement. The existing collectiveagreement with the PWU will expire on March 31,2015, and the existing Society collectiveagreement will expire on March 31, 2016. We face financial risks related to our ability tonegotiate collective agreements consistent with our rate orders. In addition, in the event of alabour dispute, we could face operational riskrelated to continued compliance with our licencerequirements of providing service to customers.Any of these could have a material adverse effecton our company.

Risk Associated with Arranging Debt Financing We expect to borrow to repay our existingindebtedness and fund a portion of capitalexpenditures. We have substantial amounts ofexisting debt, including $550 million maturing in 2015 and $500 million maturing in 2016. We plan to incur capital expenditures ofapproximately $1,600 million in 2015 and$1,625 million in 2016. Cash generated fromoperations, after the payment of expecteddividends, will not be sufficient to fund therepayment of our existing indebtedness andcapital expenditures. Our ability to arrangesufficient and cost-effective debt financing couldbe materially adversely affected by numerousfactors, including the regulatory environment inOntario, our results of operations and financialposition, market conditions, the ratings assigned

to our debt securities by credit rating agenciesand general economic conditions. Any failure orinability on our part to borrow substantial amountsof debt on satisfactory terms could impair ourability to repay maturing debt, fund capitalexpenditures and meet other obligations andrequirements and, as a result, could have amaterial adverse effect on our company.

Asset Condition We continually monitor the condition of our assetsto determine need and timing of preventative orremedial actions to maintain the desired level ofservice. Condition assessment is one of the keydrivers for asset maintenance, refurbishment orreplacement strategies to maintain equipmentperformance and provide reliable service quality.Our capital programs have been increasing tomaintain the performance of our aging asset base.Execution of these plans is partially dependent onexternal factors, such as outage planning with the IESO and transmission-connected customers,funding approval by the OEB, and supply chainavailability for equipment suppliers and consultingservices. In addition, opportunities to removeequipment from service to accommodateconstruction and maintenance are becomingincreasingly limited due to customer and generatorpriorities.

Adjustments to accommodate these externaldependencies have been made in our planningprocess, and we are focused on overcoming these challenges to execute our work programs.However, if we are unable to carry out these plans in a timely and optimal manner, equipmentperformance will degrade which may compromisethe reliability of the provincial grid, our ability todeliver sufficient electricity and/or customer supplysecurity and increase the costs of operating andmaintaining these assets. This could have amaterial adverse effect on our company.


Environmental RiskOur health, safety and environmental managementsystem is designed to ensure hazards and risks are identified and assessed, and controls areimplemented to mitigate significant risks. Thissystem includes a standing committee of our Boardthat has governance over environmental matters(see “Committees of the Board of Directors –Health, Safety and Environment Committee”).However, given the territory that our systemencompasses and the amount of equipment thatwe own, we cannot guarantee that all such riskswill be identified and mitigated without significantcost and expense to our company. The followingare some of the areas that may have a significantimpact on our operations.

We are subject to extensive Canadian federal,provincial and municipal environmentalregulation. Failure to comply could subject us to fines and other penalties. In addition, thepresence or release of hazardous or other harmfulsubstances could lead to claims by third partiesand/or governmental orders requiring us to takespecific actions such as investigating, controllingand remediating the effects of these substances.We are currently undertaking a voluntary landassessment and remediation (“LAR”) programcovering most of our stations and service centres.This program involves the systematic identificationof any contamination at or from these facilities,and, where necessary, the development ofremediation plans for our company and adjacentprivate properties. Any contamination of ourproperties could limit our ability to sell these assetsin the future.

We record a liability for our best estimate of thepresent value of the future expenditures required to comply with Environment Canada’s PCBregulations and for the present value of the futureexpenditures to complete our LAR program. The

future expenditures required to discharge our PCBobligation are expected to be incurred over theperiod ending 2025, while our LAR expendituresare expected to be incurred over the periodending 2022. Actual future environmentalexpenditures may vary materially from theestimates used in the calculation of theenvironmental liabilities on our balance sheet. We do not have insurance coverage for theseenvironmental expenditures.

Under applicable regulations, we expect to incur future expenditures to identify, remove anddispose of asbestos-containing materials installedin some of our facilities. We record an assetretirement obligation for the present value of theestimated future expenditures. The estimates arebased on an external, expert study of the currentexpenditures associated with removing suchmaterials from our facilities. Actual futureexpenditures may vary materially from theestimates used for the amount of the assetretirement obligation.

There is also risk associated with obtaininggovernmental approvals, permits, or renewals of existing approvals and permits related toconstructing or operating facilities. This mayrequire environmental assessment or result in theimposition of conditions, or both, which couldresult in delays and cost increases.

We anticipate that all of our future environmentalexpenditures will continue to be recoverable infuture electricity rates. However, any futureregulatory decision to disallow or limit therecovery of such costs could have a materialadverse effect on our company.

Scientists and public health experts have beenstudying the possibility that exposure to electricand magnetic fields emanating from power lines

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and other electric sources may cause healthproblems. If it were to be concluded that electricand magnetic fields present a health risk, orgovernments decide to implement exposure limits,we could face litigation, be required to take costlymitigation measures such as relocating some ofour facilities or experience difficulties in locatingand building new facilities. Any of these couldhave a material adverse effect on our company.

Pension Plan RiskWe have a defined benefit registered pensionplan for the majority of our employees.Contributions to the pension plan are establishedby actuarial valuations which are minimallyrequired to be filed with the Financial ServicesCommission of Ontario on a triennial basis. Themost recently filed valuation was prepared as atDecember 31, 2013, and was filed in June 2014.Our company contributed approximately $160million in respect of 2013 and approximately$174 million in respect of 2014 to its pensionplan to satisfy minimum funding requirements.Contributions beyond 2014 will depend oninvestment returns, changes in benefits andactuarial assumptions and may include additionalvoluntary contributions from time to time.Nevertheless, future contributions are expected tobe significant. A determination by the OEB thatsome of our pension expenditures are notrecoverable from customers could have a materialadverse effect on our company, and this risk maybe exacerbated as the quantum of requiredpension contributions increase.

Risk Associated with Outsourcing Arrangements Consistent with our strategy of reducing operatingcosts, we entered into outsourcing arrangementswith Inergi LP and Brookfield Johnson ControlsCanada LP. See “Description of the Business –Outsourcing Arrangements”. If either of theseoutsourcing arrangements are terminated for any

reason or expires before a new supplier isselected, we could be required to incur significantexpenses to transfer to another service provider orinsource, which could have a material adverseeffect on our business, operating results, financialcondition or prospects.

Market and Credit Risk Market risk refers primarily to the risk of loss thatresults from changes in commodity prices, foreignexchange rates and interest rates. We do not have commodity price risk. We do have foreignexchange risk as we enter into agreements topurchase materials and equipment associated withour capital programs and projects that are settledin foreign currencies. This foreign exchange risk is not material. We could in the future decide toissue foreign currency denominated debt whichwe would anticipate hedging back to Canadiandollars, consistent with our company’s riskmanagement policy. We are exposed tofluctuations in interest rates as our regulated rateof return is derived using a formulaic approach. The OEB-approved adjustment formula forcalculating ROE in a deemed regulatory capitalstructure of 40% common equity and 60% debtwill increase or decrease by 50% of the changebetween the current Long Canada Bond Forecastand the risk-free rate established at 4.25% and50% of the change in the spread in 30-year “A”-rated Canadian utility bonds over the 30-yearbenchmark Government of Canada bond yieldestablished at 1.415%. We estimate that a 1%decrease in the forecasted long-term Governmentof Canada bond yield used in determining ourrate of return would reduce our transmissionbusiness’ 2015 net income by approximately $20 million and our Hydro One Networks Inc.distribution business’ 2015 net income byapproximately $13 million. Our net income isadversely impacted by rising interest rates as ourmaturing long-term debt is refinanced at market


rates. We periodically utilize interest rate swapagreements to mitigate elements of interest raterisk.

Financial assets create a risk that a counterpartywill fail to discharge an obligation, causing afinancial loss. Derivative financial instrumentsresult in exposure to credit risk, since there is arisk of counterparty default. We monitor andminimize credit risk through various techniques,including dealing with highly-rated counterparties,limiting total exposure levels with individualcounterparties, and by entering into masteragreements which enable net settlement and bymonitoring the financial condition ofcounterparties. We do not trade in any energyderivatives. We do, however, have interest rateswap contracts outstanding from time to time.Currently, there are no significant concentrationsof credit risk with respect to any class of financialassets. We are required to procure electricity onbehalf of competitive retailers and embeddedLDCs for resale to their customers. The resultingconcentrations of credit risk are mitigated throughthe use of various security arrangements, includingletters of credit, which are incorporated into ourservice agreements with these retailers inaccordance with the OEB’s Retail Settlement Code.The failure to properly manage these risks couldhave a material adverse effect on our company.

Risk Associated with Transmission Projects Transmission projects involve either modifyingexisting or building new transmission lines and/orstations or both. Such projects are requiredprimarily to address limitations on the transmissionnetwork to transfer power from generation sourcesto load centres, improve regional load supplycapacity and reliability, connect new generatorsand load customers, and to meet new or changesto codes and standards.

In many cases, transmission investments arecontingent upon one or more of the followingapprovals and/or processes: EA approval(s);receipt of OEB approvals which can includeexpropriation; and appropriate consultationprocesses with First Nations and Métiscommunities. Obtaining OEB and/or EAapprovals and carrying out these processes mayalso be impacted by opposition to the proposedsite of transmission investments which couldadversely affect transmission reliability and/or our service quality, both of which could have amaterial adverse effect on our company.

With the introduction on August 26, 2010, of the OEB’s competitive transmission projectdevelopment planning process, in the absence ofa government directive, all interested transmitterswill be required to submit a bid to the OEB forpossibly some identified enabler facilities andnetwork enhancement projects. The facilitation ofcompetitive transmission could impact our futurework program and our ability to expand ourcurrent transmission footprint. In addition, as bid costs are recoverable only by the successfulproponent, additional costs for unsuccessful bidswould be absorbed. This could have a materialadverse effect on our company.

Risk from Provincial Ownership of TransmissionCorridors Pursuant to the Reliable Energy and ConsumerProtection Act, 2002, the Province acquiredownership of our transmission corridor landsunderlying our transmission system. Although we have the statutory right to use the transmissioncorridors, we may be limited in our ability toexpand our systems. Also, other uses of thetransmission corridors by third parties inconjunction with the operation of our systems may increase safety or environmental risks, whichcould have an adverse effect on our company.

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DIVIDENDS

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Dividends on our common shares and Series A preferred shares are declared at thediscretion of our Board and are recommended by our management based on ourresults of operations, maintenance of the deemed regulatory capital structure, financialcondition, cash requirements and other relevant factors, such as industry practice andshareholder expectations. Our company’s policy is to declare and pay cashdividends on our common shares on the basis of a calculation involving our regulated net incomenet of preferred dividends and non-regulated netincome. Any factor that adversely affects ourcompany’s net income would likely be reflected in our dividend payments.

We declared and paid to the Province annualdividends on our outstanding 100,000 commonshares totalling approximately $269 million in2014 as compared with $200 million in 2013

and $352 million in 2012. We declared and paidto the Province a total annual cumulative dividendon our outstanding 12,920,000 series A preferredshares of approximately $18 million in each of2014, 2013 and 2012, which was calculated at a rate of $1.375 per annum per share, asstipulated in our company’s Articles ofIncorporation. Additionally, in 2014 we madepayments in lieu of taxes to OEFC in the amountof approximately $86 million, as compared to$138 million in 2013.


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General Description of CapitalStructureThe authorized share capital of our companyconsists of an unlimited number of common shares (the voting shares of our company) and an unlimited number of preferred shares. As atDecember 31, 2014, 100,000 common sharesand 12,920,000 series A preferred shares wereissued and outstanding, all of which are owneddirectly by the Province.

All of our company’s voting securities are held bythe Province. Accordingly, our company iscontrolled by the Province.

The common shares are not redeemable orretractable. Holders of our common shares areentitled to one vote per share at meetings of theshareholders of the common shares and to receivedividends if, as, and when declared by the Boardof our company. Holders of common shares arealso entitled to participate, pro rata to theirholding of common shares, in any distribution ofthe assets of our company upon its liquidation,dissolution or winding-up. The series A preferredshares, as set forth in our Articles of Incorporation,entitle our company to redeem all or any part ofthese shares subject to certain terms andconditions as set forth therein. These series Apreferred shares are entitled to a dividend at a rate of $1.375 per annum per share.Our company has not issued any restrictedsecurities.



74 HYDRO ONE INC.

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The following information relating to credit ratings isbased on information made available to the public by the rating agencies.

Credit ratings are intended to provide investors with anindependent measure of the credit quality of an issue of securities. The rating agencies rate long-term debtinstruments by rating categories ranging from a high of “AAA” to a low of “D” (“C” in the case of Moody’s).Long-term debt instruments which are rated in the Acategory by S&P mean the obligor has a strong capacityto meet its financial commitments and obligations but areconsidered somewhat more susceptible to the adverseeffects of changes in circumstances and adverseeconomic conditions than obligations in higher ratedcategories. S&P utilizes a “+” or a “-” modifier to indicatethe relative standing within the rating category. Long-termdebt instruments which are rated in the A category byDBRS are considered to be of a good credit quality, withsubstantial capacity for the payment of financialobligations. Entities in the “A” category, however, areconsidered to be more vulnerable to future events, butqualifying negative factors are considered manageable.The “high” modifier indicates relative standing within thisrating category by DBRS. Long-term debt instruments

which are rated in the A category by Moody’s areconsidered upper medium grade and are subject to lowcredit risk. Moody’s applies numerical modifiers to eachgeneric rating classification from Aa to Caa. The modifier1 indicates a ranking in the higher end of that genericrating category.

The ratings mentioned above are not a recommendationto purchase, sell or hold our company’s debt securitiesand do not comment on market price or suitability for aparticular investor. There can be no assurance that theratings will remain in effect for any given period of timeor that the ratings will not be revised or withdrawnentirely by any or all of S&P, DBRS and Moody’s at anytime in the future if in their judgment circumstances sowarrant.

Our company has made payments to S&P, DBRS andMoody’s in connection with the assignment of ratings toour long-term debt and will make payments to S&P, DBRSand Moody’s in connection with the confirmation of suchratings for purposes of the offering of medium term notesin the future. We have not made any payment to S&P,DBRS or Moody’s in respect of any other services duringthe last two years.



The credit ratings assigned to our company’s debt securities by external rating agenciesare important to our ability to raise capital and funding to support our businessoperations. Maintaining strong credit ratings allows our company to access capitalmarkets on competitive terms. A material downgrade of our credit ratings would likelyincrease our cost of funding significantly, and our ability to access funding and capitalthrough the capital markets could be reduced. Our company’s corporate credit ratingsfrom designated rating organizations are as follows:

Rating Agency Short-term Debt Long-term Debt

Standard & Poor’s Rating Services Inc. (“S&P”) A-1 A+

DBRS Limited (“DBRS”) R-1 (middle) A (high)

Moody’s Investors Services Inc. (“Moody’s”) Prime-1 A1


Note Principal Amount Sale Price ($) / Gross Proceeds ($)(million) ($) $100 principal

amount

Series 30 Notes (4.29%) due 2064 50 99.938 49,969,000.00

Series 31 (Floating Rate 3-month BA + 0.35%) due 2019 125 100.00 125,000,000.00



Series 32 Notes (4.17%) due 2044 350 99.898 349,643,000.00

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Our Debentures (7.35%) due 2030, Series 2 Notes (6.93%) due 2032, Series 4 Notes (6.35%) due2034, Series 5 Notes (6.59%) due 2043, Series 9 Notes (5.36%) due 2036, Series 10 Notes (4.640%)due 2016, Series 11 Notes (5.00%) due 2046, Series 12 Notes (4.89%) due 2037, Series 13 Notes(5.18%) due 2017, Series 17 Notes (6.03%) due 2039, Series 18 Notes (5.49%) due 2040, Series 20Notes (4.4%) due 2020, Series 21 Notes (2.95%) due 2015, Series 22 Notes (Floating Rate 3-month BA+ 0.40%) due 2015, Series 23 Notes (4.39%) due 2041, Series 24 Notes (4.00%) due 2051, Series 25Notes (3.20%) due 2022, Series 26 Notes (3.79%) due 2062, Series 27 Notes (Floating Rate 3-monthBA + 0.37%) due 2016, Series 28 Notes (2.78%) due 2018, Series 29 Notes (4.59%) due 2043, Series30 Notes (4.29%) due 2064, Series 31 Notes (Floating Rate 3-month BA + 0.35%) due 2019 and Series32 Notes (4.17%) due 2044, are currently outstanding and, except for the Series 28 Notes and Series29 Notes, are not listed on any exchange or similar market for securities. Our Series 28 Notes andSeries 29 Notes are listed for trading on the NYSE.

Prior Sales Our company issued the following tranches of medium term notes in 2014:

Trading Price and VolumeOur Series 28 Notes (2.78%) due 2018 are listed on the NYSE under the symbol “HYDO18”. Our Series29 Notes (4.59%) due 2043 are listed on the NYSE under the symbol “HYDO43”. In the period fromtheir date of issuance to December 31, 2014, there have been no reported trades of the Series 28 Notesor the Series 29 Notes on the NYSE.



76 HYDRO ONE INC.

DIRECTORS AND OFFICERS


Name and Municipality of Residence

Sandra Pupatello (6)

Windsor, OntarioCanada(Director since November 20, 2013, Chair of the Board since April 1, 2014)

Kathryn A. Bouey (2) (5) 6)

Toronto, OntarioCanada(Director since March 30, 2007)

George Cooke (1) (2) (6)

Toronto, OntarioCanada(Director since January 25, 2010)

Sally Daub (1) (3)

Toronto, OntarioCanada(Director since April 25, 2014)

Catherine Karakatsanis (3) (4) (5)

Toronto, OntarioCanada(Director since November 27, 2013)

William Limbrick (2) (5)

Georgetown, OntarioCanada(Director since April 11, 2014)

Principal Occupation

Chair of the Board of Directors of Hydro One Inc.

Director of Business Development andGlobal Markets,PricewaterhouseCoopers, Canada

Chief Executive Officer,WindsorEssex EconomicDevelopment Corporation

President,TBG Strategic Services Inc.Corporate Director

President,Martello Associates Consulting

Chair of the Board of Directors ofOMERS Administration Corporation

President and Chief Executive Officer,ViXS Systems Inc.

Chief Operating Officer,Morrison Hershfield Group Inc.

Corporate Director

The following table sets forth the name, municipality of residence and principal occupation of each of ourdirectors, as of December 31, 2014.


Directors


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Don MacKinnon (1) (3) (4)

Chatsworth, OntarioCanada(Director since June 11, 2002)

Carmine Marcello (6)

Thornhill, OntarioCanada(Director since January 1, 2013)

Tom Moss (4) (5)

Nepean, OntarioCanada(Director since April 11, 2014)

Yezdi Pavri (1) (2) (6)

Toronto, OntarioCanada(Director since December 6, 2012)

Gale Rubenstein (2) (3) (4) (6)

Toronto, OntarioCanada(Director since March 30, 2007)

Maureen Sabia (1) (5)

Toronto, OntarioCanada(Director since April 25, 2014)

John Wiersma (4) (5)

Wasaga Beach, OntarioCanada(Director since April 11, 2014)

Carole Workman (1) (3)

Orleans, OntarioCanada(Director since April 25, 2014)

President,Power Workers’ Union

President and Chief Executive Officer,Hydro One Inc.

Corporate Director

Corporate Director

Partner, Goodmans LLP

Non-Executive Chairman of the Board ofDirectors of Canadian Tire Corporation Limited

Corporate Director

Corporate Director

(1) Member of the Audit, Finance and Pension Investment Committee(2) Member of the Corporate Governance and Human Resources Committee(3) Member of the Regulatory and Public Policy Committee(4) Member of the Health, Safety and Environment Committee(5) Member of the Business Transformation Committee(6) Member of the Strategy Committee


78 HYDRO ONE INC.



Sandra Pupatello was appointed Chair of the Board of Directors of Hydro One Inc. on April 1, 2014. Ms. Pupatello is also the Director of Business Development and Global Markets at PricewaterhouseCoopers Canada, a position she has held since 2012. PwC provides audit andassurance, consulting, deals and tax services for public, private and governmentclients. In May 2013, she was appointed as the Chief Executive Officer of theWindsorEssex Economic Development Corporation. Ms. Pupatello was firstelected into the Ontario legislature in 1995, appointed to Cabinet in 2003.Between 2003 and 2011, she held several portfolios, including Minister ofCommunity and Social Services, Minister of Education, and spent 6 years as

Minister of Economic Development and Trade. Ms. Pupatello held a host of volunteer positions in herhometown of Windsor, Ontario including the Board of Windsor Regional Hospital and Windsor RegionalChildren’s Centre. She holds a Hon. Bachelor of Arts and Honourary Doctor of Laws degree from theUniversity of Windsor. Ms. Pupatello has been a Director of our company since November 20, 2013.

Kathryn A. Bouey is President of TBG Strategic Services Inc., a managementconsulting firm. From 2001 to 2005, Ms. Bouey was the Deputy Minister of the Management Board Secretariat, Province of Ontario and previously heldother senior management positions with the Province, including: Deputy Ministerof Intergovernmental Affairs (1999-2001); and Assistant Deputy Minister,Corporate Services Group, Ministry of Health and Long-Term Care (1997-1999). She is currently a Director of SPRINT Senior Care. Previously, she heldthe position of Chair of the Ontario Civil Service Commission and has served on the boards of the Canadian Comprehensive Auditing Foundation, OntarioPower Generation, the Ontario Financing Authority, the Ontario Pension Board,

Sheridan College Institute of Technology and Applied Learning, and St. Joseph’s Health Care. Ms. Boueyobtained a Master of Arts (Economics) from Carleton University in 1981 and was certified by the Instituteof Corporate Directors in 2006. She has been a Director of our company since March 30, 2007.

George L. Cooke is President, Martello Associates Consulting, a businessstrategy consulting firm, and on October 1, 2013 he was appointed as Chair of the Board of Directors of the OMERS Administration Corporation. OMERS is one of Canada’s largest pension funds and the OMERS AdministrationCorporation is responsible for pension services and administration, investments,and plan valuation. Mr. Cooke is the former President and CEO, The Dominionof Canada General Insurance Company (“The Dominion”), a position he heldfrom 1992 when he joined the company to August 2012. In August 2012, Mr. Cooke retired from his role as President of The Dominion and continued tohold the position of Chief Executive Officer of the company until December 31,

2012. Prior to his appointment with The Dominion, Mr. Cooke was Vice President (Ontario Division), S.A.Murray Consulting Inc. (a government relations consulting firm) between 1990 and 1992. His previousexperience also includes Special Advisor, Policy to the Ontario Deputy Premier and Treasurer (1989-1990), General Manager, Ontario Automobile Insurance Board (1988-1989), and positions with the

KATHRYN A. BOUEYDirector

GEORGE L. COOKEDirector

SANDRA PUPATELLO Chair


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OEB (1980-1988). Mr. Cooke obtained a Bachelor of Arts degree (Hons.) in Political Studies (1975) anda Masters of Business Administration degree (1977) from Queen’s University, Kingston, Ontario. He alsoholds an Honorary Doctor of Laws degree (1999) from Assumption University in Windsor. Mr. Cookewas a member of the Board of Directors of The Dominion of Canada General Insurance Company andInsurance Bureau of Canada and was also an Executive Vice President with E-L Financial CorporationLimited. He is also currently the Chair of the Board of Directors of CANATICS (Canadian NationalInsurance Crime Services). Mr. Cooke has been a Director of our company since January 26, 2010.

Sally Daub is a director of ViXS Systems Inc. (“ViXS”), a leading semiconductorcompany headquartered in Toronto, Ontario, and served as the President andChief Executive Officer of ViXS from 2001 until February 2015. Having taken the company public on the TSX in July 2013, Ms. Daub has consistently beenrecognized for her entrepreneurial and business expertise, including: Women’sExecutive Network: Canada’s Most Powerful Women: Top 100; RBC Women ofInfluence, Trailblazer Category; and PROFIT Magazine’s Top 100 WomenEntrepreneur. Trained as a chemical engineer and lawyer, with degrees fromUniversity of Ottawa and Dalhousie respectively, Ms. Daub began her career as a patent attorney both at the law firm of Smart & Biggar and Nortel Networks,

where she specialized in IP licensing, strategy, development and management. Directly prior to joiningViXS, Ms. Daub served as Vice President and Chief Legal Counsel for ATI Technologies, a graphics chipssupplier. Ms. Daub is also a registered patent agent in both Canada and the United States. Previously shehas also served as Chair of the Small Business Agency of Ontario (part of what is now the Ontario Ministryof Economic Development, Trade and Employment) and as a board member of the Information TechnologyAssociation of Canada and the Global Semiconductor Association. Ms. Daub has been a Director of ourcompany since April 25, 2014.

Catherine Karakatsanis is the Chief Operating Officer and board member of Morrison Hershfield Group Inc., a consulting engineering and management firmwith offices across North America. Ms. Karakatsanis has had a progressive careerat Morrison Hershfield moving successfully through a series of engineering andsenior management positions before becoming COO in 2012. Throughout hercareer, Ms. Karakatsanis has been active within the engineering profession,having served as President and Chair of Engineers Canada, representing the250,000 Professional Engineers in Canada, President and Chair of both ofOntario’s licensure and advocacy engineering bodies, and was a member of the board of the Canadian Engineering Memorial Foundation and the Foundation

for Education. Ms. Karakatsanis currently also sits on the boards of Engineers Without Borders, WesternEngineering and the Hellenic Heritage Foundation. Ms. Karakatsanis has consistently been recognized forher business and engineering contributions including having been inducted into The Canadian Academy of Engineering as a Fellow; awarded the Engineering Medal of Management; been named one of Canada’sMost Powerful Women: Top 100 in both the Professional and Corporate Governance categories; and wasalso recently awarded Ontario Women’s Directorate – Leading Women Building Communities Award,among others. She is a member of a number of professional organizations, including Professional EngineersOntario, The Ontario Society of Professional Engineers, Consulting Engineers Ontario, and Geologists and

SALLY DAUB Director

CATHERINE KARAKATSANIS Director




Geophysicists of Alberta and has authored more than a dozen papers. Ms. Karakatsanis obtained herBachelor of Engineering Science and Masters of Engineering Science at The University of Western Ontario.Ms. Karakatsanis has been a Director of our company since November 27, 2013.

William Limbrick was the Vice President of Information and TechnologyServices, and Chief Information Officer of the Independent Electricity SystemOperator (IESO). The IESO’s Information and Technology Services business unit isresponsible for information technology, organizational governance, and oversightof the Smart Metering Entity. Mr. Limbrick’s role also included the introduction ofthe provincial smart metering database, the MDM/R. Prior to joining the IESO, Mr. Limbrick was a Principal Consultant within the utilities practice ofPricewaterhouseCoopers (PwC) and Sun Life Assurance in the United Kingdom. As a PwC Principal Consultant, he worked with the IESO to implement the IESO-administered market and in 1998 as overall program manager; he previously

worked on the expansion of the competitive electricity market in the UK. He obtained a degree inMathematical Economics from the University of Essex. Mr. Limbrick has been a Director of our company since April 11, 2014.

Don MacKinnon has been President of the Power Workers’ Union, anelectricity industry workers union, since May 2000 and a lineman by trade since1971. He was Vice-President of the Power Workers’ Union for 11 years prior tobeing elected President. In 2000, Mr. MacKinnon was appointed by the Ministerof Energy, Science and Technology to the Electricity Transition Committee. He was a member of the Board of Directors of the Electrical and Utilities SafetyAssociation and the Retail Management Board of Ontario Hydro. In 2003, Mr. MacKinnon was appointed by the Minister of Energy to the government’sElectricity Conservation and Supply Task Force. In 2005, Mr. MacKinnon becamea member of the Canadian Nuclear Association’s Board of Directors. In 2007,

he became a member of the National Round Table on the Environment and the Economy, and in October2011 became a member of the Advisory Committee of the Centre for Labour Management Relations atRyerson University. Mr. MacKinnon is a member of the Board of Plug’n Drive Ontario and a member ofthe Board Advisory Council of the Waterloo Institute for Sustainable Energy (WISE), University of Waterloo.Most recently, he became a member of the Advisory Board of the Ivey Energy Policy and ManagementCentre. Mr. MacKinnon has been a Director of our company since June 11, 2002.

Carmine Marcello was appointed President and Chief Executive Officer ofHydro One Inc. in January 2013. He joined Ontario Hydro in 1987 and has over 25 years’ experience in the electric utility industry and has held many seniormanagement positions at Ontario Hydro and then Hydro One Inc. In 2007, hewas appointed Vice President, Corporate Projects and in 2009 he was appointedSenior Vice President, Asset Management and was responsible for the life cyclemanagement of Hydro One’s transmission and distribution assets including HydroOne’s Smart Grid Initiative. In 2010, he was appointed Executive Vice President,

WILLIAM LIMBRICK Director

DON MACKINNON Director

CARMINE MARCELLO President and CEO

80 HYDRO ONE INC.


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Strategy and was responsible for transmission and distribution asset management, transmission anddistribution development, business and power systems, IT, Telecom and the operations of the Hydro Onesubsidiaries, Hydro One Brampton Networks Inc. and Hydro One Telecom Inc. Mr. Marcello currentlyserves as the Chair of the Hydro One Brampton Networks Inc. Board of Directors. He is a member of theCanadian Electricity Association (CEA), Ontario Energy Association (OEA) and Plug’n Drive’s Board ofDirectors. Mr. Marcello is also a member of the Electricity Sub-Sector Coordinating Council’s ExecutiveCommittee, holds a position on the Electric Power Research Institute’s Research and Advisory Committeeand on the Canadian Council of Chief Executives Advisory Committee on Cyber Security. Mr. Marcellowas inducted as a Fellow of the Canadian Academy of Engineering in 2014. Mr. Marcello previouslyserved on the North American Transmission Forum Board of Directors and the NERC MemberRepresentatives Committee (MRC). He has held previous positions on the OEN Board of Directors and isthe past Chair of the CEA Transmission Council. Mr. Marcello holds a Master of Business Administrationfrom York University, a Bachelor of Applied Science in Electrical Engineering from the University ofToronto and holds an ICD.D designation from the Institute of Corporate Directors. Mr. Marcello has beena Director of our company since January 1, 2013.

Tom Moss is the former President and Chief Operating Officer of Telecom Ottawa. An executive with over 35 years’ experience in thetelecommunications, software and government sectors, both in Canada and the United States, Mr. Moss has held senior executive positions with high profilepublic and private companies together with two local start-up companies. Hehas held strategic policy positions in the federal government at Treasury Boardand Industry Canada (formerly Communications). Mr. Moss has served on theQueensway Carleton Hospital Board of Directors since June 2008 and is theVice-Chairman of the Barrhaven Business Improvement Area. Mr. Moss hasbeen a Director of our company since April 11, 2014.

Yezdi Pavri is a Chartered Accountant, a former Vice-Chairman (June 2010 -June 2012), and a former Toronto Managing Partner (June 2004 - May 2010)of Deloitte Canada, a leading professional services firm for audit, tax,consulting and financial advisory services. Mr. Pavri's experience with DeloitteCanada has included overall responsibility for a number of the firm's key clientsin the financial, retail and governmental sectors. Between 1990-2004, Mr. Pavriwas National Managing Partner for Deloitte Canada's Enterprise Risk Servicesgroup. Mr. Pavri holds a B. Technology from the Indian Institute of Technology(Aeronautical Engineering) 1972; a M.Sc. from the Imperial College, LondonUniversity (Thermal Power Engineering) 1974; and obtained his Chartered

Accountant accreditation in 1979 while he was an accountant with Binder Hamlyn, CharteredAccountants, London, UK (1974-1979). In 1979, Mr. Pavri joined Touche Ross in Toronto as anaccountant. He is a Fellow of the Institute of Chartered Accountants in England and Wales, and is also aFellow of the Institute of Chartered Accountants of Ontario. Mr. Pavri is the immediate past Chairman ofthe Board of Trustees of United Way Toronto and also served as the Treasurer of the Board of the TorontoRegion Immigrant Employment Council. He was recently appointed as the Chairman of the Board of theCanada - India Business Council. He has been a Director of our company since December 6, 2012.

TOM MOSS Director


YEZDI PAVRIDirector

82 HYDRO ONE INC.



Gale Rubenstein is a partner of the law firm Goodmans LLP and a member of the firm's Executive Committee. She practices law primarily in the areas ofcommercial insolvency and restructuring with emphasis on financial institutions,both domestic and international, and on pension restructurings. Ms. Rubensteinwas senior counsel to the liquidators of numerous financial institutions and hasbeen counsel to the Superintendent of Financial Institutions (Canada) and theSuperintendent of Financial Services (Ontario). She has authored numerouspapers on the insolvency of insurance companies and banks, and is updateauthor of LexisNexis Canada’s Insurance Companies Act: Legislation andCommentary. She obtained her Bachelor of Law degree from Osgoode Hall

Law School and is a current Director of the Insolvency Institute of Canada; a member of InsolInternational; and a Director of Osgoode Hall Alumni Association. She has been a Director of ourcompany since March 30, 2007.

Maureen Sabia is the Non-Executive Chairman of the Board of Directors of the Canadian Tire Corporation (March 8, 2007 – present), and President,Maureen Sabia International Inc., a consulting firm. Miss Sabia is also adirector of Canadian Tire Bank where she serves on its Audit Committee andimmediate past Chairman of the Foreign Affairs and International TradeCanada Departmental Audit Committee. Miss Sabia co-authored “Integrity inthe Spotlight – Opportunities for Audit Committees” published in 2002, and“Integrity in the Spotlight – Audit Committees in a High Risk World” published in2005. Miss Sabia was a member of the Board of Trustees of Brock Universitywhere she also served as Chairman of its Audit Committee, until mid 2014

and is a member of the Leadership Council of the Perimeter Institute. Miss Sabia is a lawyer and has had careers in the public and private sectors and served as the Chairman of the Export DevelopmentCorporation. She is past Chairman of the Audit Committee of Canadian Tire Corporation and immediatepast Vice-Chairman of the Public Accountants Council for the Province of Ontario. Miss Sabia wasformerly a director of Gulf Canada Resources Limited, Hollinger Inc., Laurentian General InsuranceCompany Inc., O & Y FPT Inc., O & Y Properties Corporation and Skyjack Inc. She has been a memberof the Board of Governors of the University of Guelph, Chairman of the Sunnybrook Medical CentreFoundation and a member of the Board of Trustees for Sunnybrook Medical Centre. In 2011, Miss Sabiawas appointed an Officer of the Order of Canada. She holds a J.D. from the Faculty of Law of theUniversity of Toronto, an Honours Bachelor of Arts from McGill University, and has been awarded twohonorary LL.Ds. She is an Officer of the Order of Canada. She has been a Director of our company since April 25, 2014.

MAUREEN SABIA Director

GALE RUBENSTEIN Director


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John Wiersma, P.Eng. is an electrical engineer and is the former andfounding President and CEO of Veridian Corporation (1999-2004). FollowingMr. Wiersma’s retirement from Veridian in 2004, he served as the Chairman of Veridian’s Board of Directors from January 29, 2004 to May 20, 2005. In 2004, Mr. Wiersma was appointed as a member of the Electrical SafetyAuthority (Ontario) where he served as a director until 2013 and as Chair ofthe Board from 2007 until 2013. In 2005, Mr. Wiersma was appointed as amember of the Independent Electricity System Operator’s (IESO) Board ofDirectors where he served as a director until April 3, 2014. He also served onthe Board of the Electrical and Utilities Safety Association and the Canadian

Energy Efficiency Alliance. He is a Past President of the Ajax Pickering Board of Trade, Past Chair of theRouge Valley Health System Foundation and a former board member of the Rouge Valley Health System.Mr. Wiersma obtained his Bachelor of Engineering from McMaster University. He has been a Director ofour company since April 11, 2014.

Carole Workman is a Chartered Professional Accountant (CharteredAccountant). She is a member of the Board of Allstate Insurance of Canada and is Chair of their Audit Committee and Compliance Committee. She is amember of The Ottawa Hospital Board of Directors, Past Chair of the Board,and a member of their Audit and Finance Committee. She served 7 years as a member of Hydro Ottawa, chaired the wholly owned Local DistributionCompany Board and served as a member of the Audit Committee. She was also a member and Chair of the Canadian University Insurance ExchangeReciprocal for many years. She had a long career in executive and financialmanagement and served the University of Ottawa for 24 years as its Chief

Financial Officer and Vice President, Finance & Administration until her retirement in 2004. Ms.Workman has a B. Commerce and a Masters of Public Administration and completed the HarvardInternational Management Program. She has been a Director of our company since April 25, 2014.

Each director is elected annually to serve for one year or until his or her successor is elected orappointed.

Information Regarding Certain DirectorsTom Moss was a director and President of 6495478 Canada Inc. when it declared bankruptcy on December 17, 2007.

JOHN WIERSMADirector

CAROLE WORKMANDirector


84 HYDRO ONE INC.



Name and Municipality of Residence

Sandra PupatelloWindsor, OntarioCanada

Carmine MarcelloThornhill, OntarioCanada

Sandy StruthersToronto, OntarioCanada

Ali SulemanToronto, OntarioCanada

Position With Our Company

Chair of the Board of Directors of Hydro One Inc.

President and Chief Executive Officer

Chief Operating Officer and ExecutiveVice President, Strategic Planning

Chief Financial Officer (Acting)

The following table sets forth the name, municipality of residence and position of each of our executiveofficers as of December 31, 2014.

Executive Officers

Sandra Pupatello biographical information ispresented above under “Directors”.

Carmine Marcello’s biographical information ispresented above under “Directors”.

Sandy Struthers was appointed as ChiefOperating Officer and Executive Vice President,Strategic Planning effective November 17, 2014.Prior to this, Mr. Struthers was ChiefAdministration Officer and Chief Financial Officer.Mr. Struthers joined Hydro One in 2000 as aDirector in the Finance area, was appointed asChief Information Officer in 2005, Senior VicePresident and Chief Financial Officer in 2009,and then was appointed Executive Vice Presidentand Chief Financial Officer in 2010. Prior tojoining Hydro One, Mr. Struthers was a partner in a national accounting firm.

Ali Suleman was appointed as Chief FinancialOfficer (Acting) effective November 17, 2014.Prior to this, Mr. Suleman served as Vice Presidentand Treasurer from 2004, and as Treasurer from

1999. Mr. Suleman joined Ontario Hydro in1991 as Treasury Analyst. In 1994, Mr. Sulemanworked with Manulife Financial as Manager,Corporate Finance before rejoining Ontario Hydroin 1995 as Manager, Debt. Prior to joiningOntario Hydro in 1991, Mr. Suleman worked inthe municipal bond area in New York City.

There is no family relationship between anydirector or executive officer and any other directoror executive officer.

Indebtedness of Directors andExecutive Officers No director, executive officer, employee, formerdirector, former executive officer or formeremployee or associate of any director or executiveofficer of Hydro One or any of its subsidiaries hadany outstanding indebtedness to Hydro One orany of its subsidiaries except routine indebtednessor had any indebtedness that was the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understandingprovided by Hydro One or any of its subsidiaries.


INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS


Relationships with the Provinceand Other Parties

Overview The Province owns all of our outstanding shares.As a result, the Province has the power to controlall governance decisions affecting us, includingthe composition of our Board. Accordingly, theProvince exercises control over our policies, theacquisition or disposition of assets, the incurrenceof further debt and the payment of dividends toholders of our common and preferred shares.

The OEB is the principal regulator of Ontario’selectricity industry. The Province appoints theboard members of the OEB and fills any vacancieson the OEB. The OEB is obligated to implementapproved directives of the Province concerninggeneral policy and objectives to be pursued by the OEB and other directives aimed at addressingexisting or potential abuses of market power by industry participants. The IESO directs theoperation of our transmission system. The Board of Directors of the IESO, other than its ChiefExecutive Officer, is appointed by the Province in accordance with the regulations in effect from time to time under the Electricity Act.

The OPA is mandated to forecast supply anddemand of electricity over the medium and longterm and to conduct planning and implementmeasures to meet the supply and demand needs.Its Board of Directors is appointed by the Province.

Transfer OrdersThe transfer orders pursuant to which we acquired Ontario Hydro’s electricity transmission,distribution and energy services businesses as ofApril 1, 1999, did not transfer any asset, right,

liability or obligation where the transfer wouldconstitute a breach of the terms of any such asset,right, liability or obligation or a breach of any lawor order. The transfer orders also did not transfertitle to some assets located on Reserves. Thetransfer of title to these assets did not occurbecause authorizations originally granted by theCanadian Minister of Indian and Northern Affairsfor the construction and operation of these assetscould not be transferred without the consent ofsuch Minister and the relevant First Nation or, inseveral cases, because the authorizations hadeither expired or had never been properly issued.These assets consist primarily of approximately 70 kilometres of transmission lines and distributionlines used to deliver electricity on Reserves (ofwhich 14 kilometres of lines are used solely forserving customers off the Reserves). OEFC holdsthese assets.

We are obligated under the transfer orders tomanage both the assets held in trust until we haveobtained all consents necessary to complete thetransfer of title to these assets to us and the assetsotherwise retained by OEFC that relate to ourbusinesses. We have entered into an agreementwith OEFC under which we are obligated, inmanaging the assets, to take instructions fromOEFC if our actions could have a material adverseeffect on it. OEFC has retained the right to takecontrol of and manage the assets, although it must notify and consult with us before doing soand must exercise its powers relating to the assetsin a manner that will facilitate the operation of ourbusinesses. The consent of OEFC is also requiredprior to any disposition of these assets.

The Province also transferred officers, employees,assets, liabilities, rights and obligations of Ontario

INTEREST OF MANAGEMENT AND OTHERS INMATERIAL TRANSACTIONS

86 HYDRO ONE INC.



Hydro in a similar manner to its other successorcorporations. These transfer orders include adispute resolution mechanism to resolve anydisagreement among the various transferees withrespect to the transfer of specific assets, liabilities,rights or obligations.

The transfer orders do not contain anyrepresentations or warranties from the Province or OEFC with respect to the transferred officers,employees, assets, liabilities, rights andobligations. Furthermore, under the Electricity Act,OEFC was released from liability in respect of allassets and liabilities transferred by the transferorders, except for liability under our indemnityfrom OEFC as discussed below. By the terms of thetransfer orders, each transferee indemnifies OEFCwith respect to any assets and liabilities noteffectively transferred, and is obligated to take all reasonable measures to complete the transferswhere the transfers were not effective.

IndemnitiesOEFC indemnified us with respect to the failure ofthe transfer orders to transfer any asset, right orthing or any interest therein related to our businessto us and some of our subsidiaries, some adverseclaims or interests of third parties or based ontitle deficiencies arising from the transfer orders,except for some claims and rights of the Crown,and claims related to any equity accountpreviously referred to in the financial statements of Ontario Hydro, including amounts relating toany judgment, settlement or payment in connectionwith litigation initiated by some utilitiescommissions. The Province has unconditionallyand irrevocably guaranteed to us and oursubsidiaries the payment of all amounts owing by OEFC under its indemnity.

The indemnity specifically excludes any matter for which we have agreed or are required to

indemnify OEFC pursuant to or in connection with any transfer order. It also excludes any claimrelated to any aboriginal title or rights or theabsence of a permit, right-of-way, easement orsimilar right in respect of Reserves. It also excludesany payment made, or loss, expense or liabilityincurred by us as a result of the failure of atransfer order to transfer any asset of OntarioHydro described in the provisions of the transferorder relating to ineffective transfers.

The indemnity does not cover the first $10,000 in value of each claim and only applies to theamount by which the total of all claims exceeds$10 million. We are obliged to pay OEFC a feefor the indemnity of $5 million per year until suchtime as the parties agree that the indemnity shouldbe terminated. We anticipate that we will requirethe indemnity until all indemnifiable claims havebeen identified and finally determined by a non-appealable court order. The indemnity ceases tobe available to any of our subsidiary corporationsif we cease to control them unless the cessation ofownership results from the sale of the shares of asubsidiary in connection with the enforcement ofsecurity on such shares by an arm’s-length creditorof Hydro One. The indemnity can be assignedunder some conditions with the consent of theMinister of Finance.

The Province has also agreed to indemnify the directors of Hydro One for any liabilitiesreasonably incurred by them in respect of anycivil, criminal or administrative action orproceeding to which they are made a party to the extent that these liabilities result from a claimor determination that their approval of theindemnity by OEFC constituted a breach of theirduty to exercise the care, diligence or skill that a reasonably prudent person would exercise incomparable circumstances.


We have indemnified OEFC in respect of thedamages, losses, obligations, liabilities, claims,encumbrances, penalties, interest, deficiencies,costs and expenses arising from matters relating toour business and any failure by us to comply withour obligations to OEFC under agreements datedas of April 1, 1999. These obligations includeobligations to employ the employees transferred tous under the transfer orders, make and remitemployee source deductions, i.e., tax withholdingamounts, and employer contributions, manage thereal and personal properties which OEFCcontinues to hold in trust or otherwise and takeany necessary action to transfer all of theseproperties to us, to pay realty taxes and othercosts, provide access to books and records and to assume other responsibilities in respect of theassets held by OEFC in trust for us.

Payments in Lieu of Corporate Taxes We and our corporate subsidiaries are exemptfrom taxes under the Income Tax Act (Canada)and the Corporations Tax Act (Ontario) and theTaxation Act, 2007 (Ontario) because we arewholly owned by the Province, and each of ourcorporate subsidiaries is, in turn, wholly owned(directly or indirectly) by us. However, pursuant tothe Electricity Act, we and each of our corporatesubsidiaries are required to pay amounts to OEFC,which are referred to as payments in lieu ofcorporate taxes or proxy taxes, in respect of eachtaxation year, generally equal to the amount of taxthat we would be liable to pay under the IncomeTax Act (Canada) and for the taxation yearsending prior to January 1, 2009, theCorporations Tax Act (Ontario) and the TaxationAct, 2007 (Ontario) thereafter if we were notexempt from taxes thereunder.

One of our subsidiaries is a limited partnership,which we control through our sole ownership of

its corporate general partner. The partnership,because of its nature, is treated as a flow throughentity for income tax and proxy tax purposes. As such, the partnership is not required to payamounts to OEFC under the Electricity Act.

Memorandum of Agreement We entered into a memorandum of agreementwith the Province in March 2008 relating to our mandate, responsibilities, performanceexpectations and executive compensation. Under this agreement, we must prepare investment plans for new transmission and distributionprojects and prioritize investments in transmissionand distribution capacity to support projectsnecessary to maintain ongoing grid security andreliability. This agreement also requires that weundertake special initiatives communicated fromtime to time by the Province by way of unanimousshareholder agreement or declaration inaccordance with the provisions of the BusinessCorporations Act (Ontario). Additionally, thisagreement requires that we obtain approval fromthe Province in advance of any proposal to issueor transfer shares in Hydro One or its subsidiaries,any major transaction, including the sale of assets,which would potentially have a material effect onthe financial interest of the Province or our abilityto make payments to OEFC or payments in lieu ofcorporate taxes (proxy taxes) under the ElectricityAct.

Effective September 24, 2008, the Province madea declaration pursuant to the memorandum ofagreement and section 108 of the BusinessCorporations Act (Ontario) pertaining to off-shoring of jobs under the 2001 Inergi Agreement.The declaration allows the Province to assume all decision-making power in respect of the off-shoring of jobs under the 2001 Inergi Agreementand removes these powers from the Board. The


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directors and officers of Hydro One are chargedwith performing that which is necessary to carryout the intention of this declaration.

Effective April 19, 2011, the Province made adeclaration preventing our company from seekingcost recovery through the regulatory process forthe upgrades from either Micro FIT or Small FITgenerators, whether directly or indirectly, for costsrelated to investment and expenditures made, orrequired to be made in order to appropriatelyfund the upgrades at up to 15 transmissionstations pursuant to the February 28, 2011 licence condition amendments made to HydroOne Networks Inc.’s transmission licence.

Effective September 30, 2013, the Province made a declaration pursuant to the memorandumof agreement and section 108 of the BusinessCorporations Act (Ontario) regarding theoutsourcing of services (the “OutsourcedServices”) covered by the Inergi Agreement.Pursuant to the declaration and the concurrentshareholder resolution, the Province restricted thediscretion and powers of our Board to manage orsupervise the management of the business andaffairs of our company as they pertain to whetheror not one or more procurements for the provisionof the Outsourced Services on the expiration of the 2001 Inergi Agreement (the “NewProcurements”) should include a requirement (the “Ontario Requirement”) that all OutsourcedServices be performed by persons who are: (i)employed in Ontario to perform those OutsourcedServices, and (ii) physically located in Ontario atthe time they perform those Outsourced Services

(the “Restricted Powers”). The Province exercised the Restricted Powers such that all New Procurements shall include the OntarioRequirement. The directors and officers of ourcompany are charged with carrying out theintention of this declaration.

Effective December 17, 2014, the Province madea further declaration pursuant to the memorandumof agreement and section 108 of the BusinessCorporations Act (Ontario) regarding theprovision of information, personnel and resourcesto the Premier’s Advisory Council on GovernmentAssets. By way of the declaration and concurrentshareholder resolution, the Province restricted therights, powers and duties of our Board, and at the same time assumed such rights, powers andduties, with respect to providing the Council, theGovernment or the Ministries and their advisorsand consultants all information, assistance,personnel, resources and reports as and whenrequested and co-operating with thoseGovernment advisors tasked with providingrecommendations on labour relations matters andpension-related matters. The directors are chargedwith carrying out the intention of the declarationand resolution, including taking such necessarysteps to issue similar declarations and resolutionswith respect to Hydro One Networks Inc. andHydro One Brampton Networks Inc.

Copies of the memorandum of agreement and theshareholder declarations have been filed with thesecurities regulatory authorities in each provinceof Canada and are available on SEDAR atwww.sedar.com.





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The trustee and registrar for our company’s debt securities is Computershare TrustCompany of Canada, located in Toronto, Ontario. The U.S. trustee and registrar forcertain of our company’s debt securities is Computershare Trust Company, N.A.,located in New York, New York.


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(a) (i) a third supplemental trust indenture dated asof January 31, 2003 relating to theissuance of Series 4 Notes in the aggregateprincipal amount of $1,000,000,000, ofwhich $200,000,000 was drawn down onJanuary 31, 2003, $120,000,000 wasdrawn down on June 25, 2004 and$65,000,000 was drawn down on August24, 2004, pursuant to the Trust Indenturedated as of June 4, 2001 between HydroOne and Computershare Trust Company ofCanada (the “Trust Indenture”);

(ii) a fourth supplemental trust indenture datedas of April 22, 2003 relating to theissuance of Series 5 Notes in the aggregateprincipal amount of $1,000,000,000, ofwhich $250,000,000 was drawn down onApril 22, 2003 and $65,000,000 wasdrawn down on August 20, 2004, pursuantto the Trust Indenture;

(iii) an eighth supplemental indenture dated asof May 19, 2005 relating to the issuance ofSeries 9 Notes in the aggregate principalamount of $1,000,000,000, of which$350,000,000 was drawn down on May19, 2005 and $250,000,000 was drawndown on April 24, 2006, pursuant to theTrust Indenture;

(iv) a ninth supplemental trust indenture datedas of March 3, 2006 relating to theissuance of Series 10 Notes in theaggregate principal amount of$1,000,000,000, of which $300,000,000was drawn down on March 3, 2006 and$150,000,000 was drawn down on August22, 2006, pursuant to the Trust Indenture;

(v) a tenth supplemental trust indenture dated asof October 19, 2006 relating to theissuance of Series 11 Notes in theaggregate principal amount of$1,000,000,000, of which $75,000,000was drawn down on October 19, 2006,and $250,000,000 was drawn down onSeptember 13, 2010, pursuant to the TrustIndenture;

(vi) an eleventh supplemental trust indenturedated as of March 13, 2007 relating to theissuance of Series 12 Notes in theaggregate principal amount of$1,000,000,000, of which $400,000,000was drawn on March 13, 2007, pursuant tothe Trust Indenture;

(vii) a twelfth supplemental trust indenture datedas of October 18, 2007 relating to theissuance of Series 13 Notes in theaggregate principal amount of$1,000,000,000, of which $300,000,000was drawn down on October 18, 2007 and$300,000,000 was drawn down on March3, 2008, pursuant to the Trust Indenture;

(viii) a sixteenth supplemental trust indenturedated as of March 3, 2009 relating to theissuance of Series 17 Notes in theaggregate principal amount of$1,000,000,000, of which $300,000,000was drawn down on March 3, 2009,pursuant to the Trust Indenture;

(ix) a seventeenth supplemental trust indenturedated as of July 16, 2009 relating to theissuance of Series 18 Notes in theaggregate principal amount of$1,000,000,000, of which $300,000,000

MATERIAL CONTRACTSThe following are the only material contracts that we have entered into since January 1,2002 that remain in effect, other than contracts entered into by us in the ordinarycourse of business:


was drawn down on July 16, 2009 and$200,000,000 was drawn on March 15,2010, pursuant to the Trust Indenture;

(x) a nineteenth supplemental trust indenturedated as of March 15, 2010 relating to theissuance of Series 20 Notes in theaggregate principal amount of$1,000,000,000, of which $300,000,000was drawn down on March 15, 2010,pursuant to the Trust Indenture;

(xi) a twentieth supplemental trust indenturedated as of September 13, 2010 relating tothe issuance of Series 21 Notes in theaggregate principal amount of$1,000,000,000, of which $250,000,000was drawn down on September 13, 2010,and $250,000,000 was drawn down onJanuary 19, 2011, pursuant to the TrustIndenture;

(xii) a twenty-first supplemental trust indenturedated as of January 24, 2011 relating tothe issuance of Series 22 Notes in theaggregate principal amount of$1,000,000,000, of which $50,000,000was drawn down on January 24, 2011,pursuant to the Trust Indenture;

(xiii) a twenty-second supplemental trust indenturedated as of July 29, 2011 amending thedefinition of “Canadian GAAP” in the TrustIndenture;

(xiv) a twenty-third supplemental trust indenturedated as of September 26, 2011 relating tothe issuance of Series 23 Notes in theaggregate principal amount of$1,000,000,000, of which $300,000,000was drawn down on September 26, 2011,pursuant to the Trust Indenture;

(xv) a twenty-fourth supplemental trust indenturedated as of December 22, 2011 relating tothe issuance of Series 24 Notes in theaggregate principal amount of$1,000,000,000, of which $100,000,000

was drawn down on December 22, 2011,and $125,000,000 was drawn down onMay 22, 2012, pursuant to the TrustIndenture;

(xvi) a twenty-fifth supplemental trust indenturedated as of January 13, 2012 relating tothe issuance of Series 25 Notes in theaggregate principal amount of$1,000,000,000, of which $300,000,000was drawn down on January 13, 2012,and $300,000,000 was drawn down onMay 22, 2012, pursuant to the TrustIndenture;

(xvii) a twenty-sixth supplemental trust indenturedated as of July 31, 2012 relating to theissuance of Series 26 Notes in theaggregate principal amount of$1,000,000,000, of which $75,000,000was drawn down on July 31, 2012, and$235,000,000 was drawn down on August16, 2012, pursuant to the Trust Indenture;

(xviii) a twenty-seventh supplemental trustindenture dated as of December 3, 2012relating to the issuance of Series 27 Notesin the aggregate principal amount of$1,000,000,000, of which $50,000,000was drawn down on December 3, 2012,pursuant to the Trust Indenture;

(xix) a twenty-eighth supplemental trust indenturedated as of October 9, 2013 relating to theissuance of Series 28 Notes in theaggregate principal amount of$1,000,000,000, of which $750,000,000was drawn down on October 9, 2013,pursuant to the Trust Indenture;

(xx) a twenty-ninth supplemental trust indenturedated as of October 9, 2013 relating to theissuance of Series 29 Notes in theaggregate principal amount of$1,000,000,000, of which $435,000,000was drawn down on October 9, 2013,pursuant to the Trust Indenture;

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(xxi) a thirtieth supplemental trust indenture datedas of January 29, 2014 relating to theissuance of Series 30 Notes in theaggregate principal amount of$1,000,000,000, of which $50,000,000was drawn down on January 29, 2014,pursuant to the Trust Indenture;

(xxii) a thirty-first supplemental trust indenturedated as of March 21, 2014 relating to the issuance of Series 31 Notes in theaggregate principal amount of$1,000,000,000 of which $125,000,000was drawn down on March 21, 2014,$50,000,000 was drawn down on May14, 2014, and $53,000,000 was drawndown on June 24, 2014, pursuant to theTrust Indenture; and

(xxiii) a thirty-second supplemental trust indenturedated as of June 6, 2014 relating to theissuance of Series 32 Notes in theaggregate principal amount of$1,000,000,000 of which $350,000,000was drawn down on June 6, 2014, pursuantto the Trust Indenture.

Each of these supplemental trust indenturessupplement the terms of the Trust Indenture, whichcontains customary covenants and representationsby our company for the public issuance of debtsecurities in the Canadian market.

(b) a Dealer Agreement dated September 4,2013 between our company and BMONesbitt Burns Inc., Casgrain & CompanyLimited, CIBC World Markets Inc., DesjardinsSecurities Inc., HSBC Securities (Canada) Inc.,Laurentian Bank Securities Inc., National BankFinancial Inc., RBC Dominion Securities Inc.,Scotia Capital Inc. and TD Securities Inc.(collectively, the “Dealers”), relating to thepublic offering of unsecured medium termnotes of Hydro One in a maximum aggregateprincipal amount of up to $3,000,000,000.The Dealer Agreement provides for theappointment of the Dealers as non-exclusiveagents of Hydro One to solicit, from time totime, offers to purchase its medium term notesin Canada, the United States and, in certaincircumstances, other jurisdictions.

Copies of these documents are available onSEDAR at www.sedar.com.

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KPMG LLPFor the year ended December 31, 2014, KPMGLLP provided the following services to ourcompany:(a) quarterly reviews of our company’s

consolidated interim financial statements;(b) annual audit of our company’s consolidated

financial statements;(c) annual audit of Hydro One Networks Inc.’s

transmission and distribution businesses,Hydro One Remote Communities Inc.’s andHydro One Brampton Networks Inc.’sfinancial statements; and

(d) annual audit of our company’s pension fundand the following companies which hold ouralternative asset investments: HOPF-HFGInvestments Ltd., HOPF-PEJ Investments Ltd.,HOPF-PEP Investments Ltd. and HOPF-INNInvestments Ltd.

KPMG LLP is independent in Canada inaccordance with its rules of professional conduct.

Towers WatsonTowers Watson provides the following services to our company:(a) annual accounting actuarial valuations

(valuation reports prepared) for registered and unregistered pension and other post-employment and post-retirement plans;

(b) tri-annual funding actuarial valuation (lastvaluation completed as of December 31,2013, next scheduled no later than as ofDecember 31, 2016); and

(c) annual accounting actuarial valuation forsupplementary pension plan for purposes ofletters of credit (valuation report prepared).

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As our sole shareholder is the Province, we are not required to prepare an information circular.Additional financial information is contained in our audited consolidated financial statements, togetherwith the auditors’ report thereon, and our Management’s Discussion and Analysis for our most recentlycompleted fiscal year, each of which may be found on SEDAR at www.sedar.com.

ADDITIONAL INFORMATIONAdditional Information about Hydro One is available on SEDAR (“System for ElectronicDocument Analysis and Retrieval”) at www.sedar.com.


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Compensation Discussion andAnalysis

OverviewThis discussion and analysis outlines Hydro One’sapproach to executive compensation, the elementsof management compensation and thecompensation paid to its Named ExecutiveOfficers (“NEOs”).

Hydro One’s executive compensation program isdesigned:• to attract, motivate and retain executives with

the skills necessary to sustain and develop asafe, reliable, and affordable service to ourcustomers, today and tomorrow, and

• to establish pay levels, based on performance,which are competitive with Canadian utility andenergy companies and other comparablecompanies, both publicly and privately owned.

Hydro One seeks to attract, retain andcompensate sufficient qualified staff to replacethose retiring as well as to position the companyfor its future work and infrastructure program.

The company’s overall compensation methodologyfor current and new management employees,including current and new executives and seniormanagement, is to target total compensation (base salary, incentive plan values, pension and benefits) at the 50th percentile of totalcompensation (i.e. salary, target bonus,annualized net present value of long termincentive plan, benefits, and pension) of the50/50 blend of public and private sector entitiesthat form our comparator group, which isdiscussed below. In 2014, the compensation study performed by the Hay Group Limited on

Hydro One’s behalf showed that target totalcompensation for senior executives is falling belowthe 50th percentile of the comparator group as aresult of compensation restraint measures.

Our compensation program in terms of total cashcompensation is comprised of a base pay and an “at-risk” performance driven variable paycomponent. These elements are designed tocomplement each other and reward achievementof short and long term corporate objectives.Annual short term incentive pay (the “IncentivePlan”), the variable pay component of thecompensation program, is linked to achievementof our corporate scorecard which measuresmanagement’s performance in accordance withand against our strategic plan and approvedbusiness plan in each year. Linking compensationto the corporate scorecard is an effective way ofdriving management and corporate performancetowards achieving specific strategic and businessoutcomes.

For 2014, Hydro One’s compensation practiceswere applied consistent with the Broader PublicSector Accountability Act, 2010, (the “BPSAA”),as amended by the Strong Action for Ontario Act(Budget Measures) 2012, which imposescompensation restraint measures on thecompensation plans of defined designatedexecutives from March 31, 2012 until such time asthe Province proclaims that the restraint measureshave expired, which cannot be before the fiscalyear in which the Province no longer has a deficit.Management employees who do not qualify asdefined designated executives are not covered bythe BPSAA. The BPSAA applies to the NEOs ofHydro One. In December 2014, Bill 8, An Act toPromote Public Sector and MPP Accountability and


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Name Title

Carmine Marcello President and Chief Executive Officer

Ali Suleman1 Chief Financial Officer (Acting)

Sandy Struthers2 Chief Operating Officer and Executive Vice President Strategic Planning

Wayne Smith Senior Vice President, Operations

Robert Cultraro Senior Vice President and Chief Investment and Pension Officer

Joseph Agostino Senior Vice President, General Counsel and Chief Compliance Officer

Transparency by Enacting the Broader PublicSector Executive Compensation Act, 2014 andAmending Various Acts, was passed. Schedule 1to Bill 8 is the Broader Public Sector ExecutiveCompensation Act, 2014, which will come intoforce when it is proclaimed. Under the BroaderPublic Sector Executive Compensation Act, 2014,the government will have the authority to createcomprehensive compensation frameworks forcertain employers in the broader public sector,including our company, and the authority to

implement a number of measures to enhanceaccountability and transparency in the governmentand the public sector. The legislation applies tocertain defined, designated executives, primarilysenior management, at Hydro One. Until such timeas this new legislation is proclaimed, Hydro Onemust continue to comply with the BPSAA withrespect to compensation as it affects designatedexecutives.

(1) Vice President and Treasurer to November 16, 2014 and Chief Financial Officer (Acting) from and after November 17, 2014

(2) Chief Administration Officer and Chief Financial Officer to November 16, 2014 and Chief Operating Officer and ExecutiveVice President, Strategic Planning from and after November 17, 2014

The NEOs of Hydro One for 2014 were:


GovernanceThe Corporate Governance and Human ResourcesCommittee of the Hydro One Board of Directors(the “CGHRC”) is comprised entirely ofindependent directors within the meaning ofCanadian securities laws. As part of its mandate,the CGHRC is responsible for Board oversight ofhuman resources issues including compensation.Its mandate with respect to its advisory functionson executive compensation is to annually reviewand recommend to the Board for approval:• all management salary ranges;• Hydro One’s total compensation practices for all

employees;• any adjustment to the President and Chief

Executive Officer’s base salary;• the aggregate amount of the Incentive Plan fund;• the amount of any Incentive Plan payout to be

made to the President and Chief ExecutiveOfficer;

• the terms of the performance agreement to beentered into with the President and ChiefExecutive Officer for the following year;

• the corporate performance measures for HydroOne; and

• Hydro One’s performance against its corporateperformance measures.

Also, the CGHRC annually reviews and approves:• the amount of any base salary adjustments for

the President and Chief Executive Officer’s directreports, and informs the Board of the CGHRC’sdecision;

• the amount of any Incentive Plan payouts to bemade to the direct reports of the President andChief Executive Officer, and informs the Boardof the CGHRC’s decision;

• the amount of any adjustments to managementbase salaries (in the aggregate) and informs theBoard of the CGHRC’s decision; and

• the amount of any management short termincentive results (in aggregate) and informs theBoard of the CGHRC’s decision.

As well, the CGHRC:• annually reviews the performance agreements

of the direct reports to the President and ChiefExecutive Officer;

• annually reviews the benefits provided under the pension and benefits plans for active andnon-active employees; and

• annually considers the implications of risksassociated with Hydro One’s compensationpolicies and practices.

Composition of the CGHRCAs at December 31, 2014, the members of ourCGHRC were Gale Rubenstein, Kathryn Bouey,George Cooke, Yezdi Pavri and William Limbrick.Members of the CGHRC have been selected andappointed to the CGHRC on the basis of theirknowledge, experience and background inexecutive compensation and risk managementrelated to compensation practices and policies.Each has experience in these areas as seniormembers of public and private corporations orbusiness entities. Members of the CGHRC areappointed by the Board, upon recommendation of the Chair, and management has no role in theselection of the committee members.

Committee Members Relevant and DirectExperienceGale Rubenstein has been a member of the Boardof Directors of Hydro One since March 30, 2007and has been a member of the CGHRC (formerlythe Human Resources Committee) since December9, 2010. Ms. Rubenstein was appointed Chair ofthe CGHRC on May 6, 2014. Ms. Rubenstein is apartner at the law firm of Goodmans LLP, locatedin Toronto, Ontario, and a member of its executiveand compensation committees. She is familiar withthe compensation practices and policies of HydroOne. Ms. Rubenstein’s practice area is ininsolvency law, but she has hands on experienceregarding compensation issues and the claims forcompensation that have to be determined and


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approved by the court in cases of insolvency andcorporate reorganization transactions.

Kathryn Bouey has been a member of the HydroOne Board of Directors since March 30, 2007and has been a member of CGHRC since May 6,2014. She was previously a member of theHuman Resources Committee from April 5, 2007to December 9, 2010 and served on theInvestment Pension Committee from December 12,2013 to May 6, 2014. As such she is familiarwith the compensation practices of Hydro One.Her background includes extensive work whileemployed by the Ontario government oncompensation and pension matters, including asDeputy Minister of Management Board Secretariatand Chair of the Civil Service Commission. Shewas also a member of the Board of Directors ofthe Ontario Pension Board. She completed theDirectors Education Program offered by Institute of Corporate Directors and Rotman School ofBusiness and has been an Institute CertifiedDirector since 2006. She has also attended anumber of educational sessions on compensationand pensions.

George Cooke has been a member of the HydroOne Board of Directors since January 26, 2010.He was appointed to the CGHRC on May 6,2014. Mr. Cooke was a director of Atomic Energyof Canada Limited from 1995 to 1999 and was amember of the Human Resources Committee ofAtomic Energy of Canada Limited. While Presidentand Chief Executive Officer of The Dominion ofCanada General Insurance Company, the humanresources function reported directly to Mr. Cooke.He is, in his role as Chair of the Board of Directorsof OMERS Administration Corporation (one ofCanada’s largest pension funds), an ex-officiomember of its human resources committee. Mr.Cooke was a member of Hydro One’s InvestmentPension Committee and now is Chair of the Audit,

Finance and Pension Investment Committee and isaccordingly familiar with pension matters relatedto compensation. Mr. Cooke is cognizant of thecompensation policies and practices at HydroOne.

Yezdi Pavri has been a member of the Hydro OneBoard of Directors since December 6, 2012. Mr. Pavri was appointed to the CGHRC on May6, 2014. He is a former Vice Chairman of DeloitteCanada and has also been the Managing Partnerof its Toronto Practice, where he was responsiblefor the evaluation and compensation of the PartnerGroup. Since his retirement from Deloitte Canadain June 2012, Mr. Pavri has been appointed to the Boards of ICICI Bank Canada and EnterraHoldings Limited (EHL), which is the holdingcompany of Golder Associates. He is the Chair of the Audit Committee and a member of theGovernance and Compensation Committee atICICI Bank Canada, with oversight of seniormanagement compensation. Mr. Pavri is also theChair of the Finance & Audit Committee at EHL, amember of the EHL Risk Committee and also theShare Ownership Committee, which has oversightof the Employee Ownership model.

William Limbrick joined the Hydro One Board of Directors effective April 11, 2014. He wasappointed to the CGHRC on May 6, 2014. Mr.Limbrick was the Vice President of Information andTechnology Services and Chief Information Officerat the IESO from 2001 to February 2014. Prior tojoining the IESO, he was a member of the utilitiespractices with PwC in the United Kingdom wherehe held a number of increasingly senior positions.At the IESO, in the last four years of his servicethere, Mr. Limbrick was responsible for humanresources matters including supporting the Human Resources Committee of the IESO board of directors. In that capacity, he maderecommendations on compensation matters and


was involved in union matters and negotiations.Additionally, Mr. Limbrick was a member of theIESO Pension Committee.

Compensation Policies and Practices Aligned toRisk ManagementThe Board is responsible for reviewing the majorrisks to the company’s strategic business objectivesand is also responsible for approving thecompany’s enterprise risk management policy and framework. The CGHRC, in relation tocompensation matters, is charged with consideringthe implications of risks associated with thecompany’s compensation policies and practices.Hydro One has a disciplined approach toidentifying and assessing risk in relation to factorsthat may adversely affect the company and theCGHRC takes this into account in determiningcompensation. This approach and oversight isdesigned to mitigate excessive risk taking bymanagement.

The following elements of risk management havebeen built into our compensation practices:• the Board has continual oversight of risk

management issues affecting the company;• compensation is aligned with Hydro One’s

strategic objectives - the Board annually sets themulti-year strategic plan for Hydro One in whichits strategic objectives are clarified and risksconsidered. These strategic objectives then formthe basis of a corporate scorecard againstwhich corporate performance is measured andincentive compensation is determined. Thespecific measures and targets in the corporatescorecard are based on objective and industrystandard factors with the targets vetted,established and recommended to the Board forapproval by the CGHRC;

• annual incentive funding is determined on acollective basis – the CGHRC assesses theoverall annual performance against the

measures and targets in the corporate scorecardand determines its recommendation to the Boardof the aggregate amount of the short termincentive payout. Determining aggregatefunding in this manner ensures all employeeshave an incentive to achieve all corporatemeasures and targets;

• performance against the measures and targetsin the corporate scorecard is reviewed andconsidered by specific Board committees inaddition to the CGHRC during the course of the year;

• actual performance against the measures andtargets in the corporate scorecard is audited bythe Senior Vice President, Internal Audit toensure the targets achieved are accuratelyrepresented and the results of such audit arereported to the CGHRC, prior to the review andassessment by the CGHRC;

• Hydro One takes a balanced approach to thelevel of compensation which is “at risk” – only a portion of the total compensation is based onIncentive Plan payments;

• actual payment of Incentive Plan amounts isbased on an assessment of individualperformance, both on an absolute basis andrelative to other individuals. Incentive Planpayments for the NEOs are at-risk and notguaranteed; performance of the NEOs isreviewed and assessed by the CGHRC todetermine the Incentive Plan payments to theNEOs. This assessment allows for considerationof the individual’s contribution to corporateperformance and the application of judgment toexclude the impact of fortuitous or unfortunatecircumstances that were largely outside thecontrol of the individual;

• there are maximum limits on incentive pay; forthe NEOs, other than the President and ChiefExecutive Officer, the maximum payout is 60%of base pay and for the President and ChiefExecutive Officer the maximum payout is 65%

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of base pay;• Hydro One does not grant to management,

including the NEOs, any options, warrants orother rights to purchase its stock, including stockappreciation rights;

• senior management is not encouraged to takeexcessive risks to directly increase theircompensation;

• the CGHRC may retain, when it considersadvisable, an independent expert to provide itwith advice on compensation matters and suchadvice includes the identification of any risksrelated to our compensation practices related to management and the NEOs;

• the CGHRC deliberates, over several meetings,on matters of material importance related tocompensation in order to reach an informeddecision; and

• the CGHRC holds in camera meetings on aregular basis and in particular does so toreach independent decisions.

Independent Consultant for the CGHRCIn 2014, the CGHRC, retained HugessenConsulting Inc., an independent consulting firmthat provides advice to boards and compensationcommittees on executive compensation, to providethe CGHRC with consulting services to support thecreation and approval of Hydro One’s scorecardand on the year end scorecard results. In 2013,Hugessen Consulting Inc. also provided to theformer Human Resources Committee consultingservices on matters of compensation. Other than in respect of its compensation-related servicesdescribed above, Hugessen Consulting Inc. didnot provide any other services to Hydro One. The table below is a summary of the fees billed byHugessen Consulting Inc. to Hydro One for eachof the two last fiscal years in respect of thecompensation services it has provided.

Executive Compensation Related Fees All Other Fees

2014 $33,845.35 $0

2013 $25,917.41 $0


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Each of the NEOs was entitled to these elementsof compensation. Hydro One does not provide its senior management with personal clubmemberships, car allowances or entertainmentaccounts. The Province issued a PerquisitesDirective, effective June 1, 2011, which applies to Hydro One. The Perquisites Directive providesthat, subject to exceptions stated therein, noperquisites are permitted in ministries, classifiedagencies and prescribed organizations. HydroOne complies with the Perquisites Directive.

The Total Cash Compensation (“TCC”) componentof the Hydro One compensation program iscomprised of base salary plus the Incentive Plan.The TCC is set relative to the Total DirectCompensation (“TDC”) of the comparator group(base salary, short term incentive, and long termincentive) in aggregate. For all managementemployees, the maximum amount payable for theIncentive Plan payment is a percentage of basepay fixed according to the band and salary rangelevel of the employee. For the NEOs, other thanthe President and Chief Executive Officer, themaximum amount payable for the Incentive Planpayment is 60% of the base salary of the NEO.For the President and Chief Executive Officer, themaximum amount payable for the Incentive Planpayment is 65% of his base salary. For all theNEOs, the maximum achievable TCC amount isthe base salary and the full award under theIncentive Plan. The value of the Incentive Plancomponent of TCC reflects short term incentives inthe comparator group. Hydro One does not havea long term incentive plan.

In 2014, the CGHRC approved a comparatorgroup submitted by management with theassistance of management’s externalcompensation advisors, the Hay Group Limited.The company’s management engaged the servicesof the Hay Group Limited to provide advice andcounsel on compensation matters, includingexecutive compensation. These services aredistinct from those provided directly to the CGHRCby Hugessen Consulting Inc., referred to above.

The comparator group consists of 30 Canadian-based entities (15 public and 15 private). Theselection criteria for the comparator groupincludes size of the organization and its revenue,engineering and technology positions, unionizedworkforce, a pay-for-performance culture and theexistence of variable pay programs. Eight of these entities are not reportable segments of their reporting parent and therefore financialinformation was not available. However, theseeight companies do form part of the Hay GroupLimited compensation information pool. Of the 22 entities in the comparator group with publiclyavailable financial information, approximately63.6% are smaller in size when compared toHydro One, based on both revenues and assets,according to their most recent publicly availableannual financial statements.


Compensation for executive officers consists of a base salary, performance-based paythrough the Incentive Plan, pension and health and dental benefits, each of which isdescribed in more detail below.

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(1) Base SalaryBase (annual) salary is intended to compensatethe NEOs for day-to-day, ongoing performance.The Board determines a range of basecompensation for each NEO based oncomparisons to comparable roles in thecomparator group.

The actual level of base salary, within theapproved range for each executive officer,including the NEOs, is determined on the basis ofjob function and the individual’s performance andexperience. The positioning of the NEO within the

approved range is based on the level ofperformance relative to the requirements of theposition. The Board establishes a base salaryincrease fund based on market comparisons.Performance is assessed on day-to-dayperformance in the role, both in terms of resultsand behaviours, and is often related to the level of experience in the role. Hydro One does notprovide across-the-board or economic increases to its NEOs. Since 2012, however, base salaryincreases for designated executives have beensubject to compensation restraint measuresimposed by the BPSAA. In 2014, the roles,

Public Sector Private Sector

Atomic Energy of Canada Limited ArcelorMittal Canada

Business Development Bank of Canada Amec Americas Limited

Canada Mortgage and Housing Corporation Barrick Gold Corporation

Canadian Standards Association/CSA Group Bombardier Transportation Canada Inc.

Enersource Hydro Mississauga Inc. Bruce Power LP

Farm Credit Canada Canadian National Railway Company

Government of Ontario Fortis Inc.

Hydro Ottawa Limited FortisBC Energy Inc.

NB Power Holding Corporation Glencore

Ontario Power Authority Goldcorp Inc.

Ontario Power Generation Newfoundland Power Inc.

Royal Canadian Mint Siemens Canada Limited

SaskEnergy Incorporated Suncor Energy Inc.

Sask Tel Ultramar Ltée

Toronto Hydro Vale Canada

Total 15 Total 15

The list of comparator group companies is as follows:


accountabilities and responsibilities of certain of the NEOs were increased due to anorganizational restructuring and adjustments were made to their base salaries to reflect suchincreased responsibilities. Base salaries wereotherwise not increased for any of the NEOs in2012, 2013 or 2014.

(2) Performance-BasedCompensationOur company does not grant to its executiveofficers any options, warrants or other rights topurchase its stock, including stock appreciationrights. Performance-based compensation isrestricted to the Incentive Plan.

Hydro One’s Incentive Plan is a mechanism used by the company to drive performance, and is separate and distinct from base salaryadjustments. The Incentive Plan is designed toestablish a strong correlation between corporateperformance, individual performance and at-riskcompensation. Hydro One’s Incentive Planprovides an opportunity for participants, includingthe NEOs, to earn an annual cash incentivepayment based on two elements. The first elementis the achievement of corporate performancetargets set by the Board. The second element is the participant’s contributions to these targets.

For the purposes of determining the amount ofshort term incentive payable to the President andChief Executive Officer, specific weightings (intotal) and levels of achievement are established by the CGHRC and are assigned to the corporateperformance measures incorporated in hisperformance contract as well as to his individualqualitative and leadership goals. The assessmentof the President and Chief Executive Officer isconducted by the CGHRC and approved by theBoard.

For management employees, the maximumallowable short term incentive is established foreach salary band (i.e. range of rates of pay) of management employees and is fixed as apercentage of base pay for that particular band.For the year ended December 31, 2014, thepotential award ranges for the NEOs were asfollows: between 0% and 65% of base salary forMr. Marcello, and between 0% and 60% of basesalary for each of Mr. Struthers, Mr. Smith, Mr.Cultraro and Mr. Agostino. For Mr. Suleman, ashe is in an acting role, the range for him remainedat his previous range of between 0% and 40% ofbase salary. The range for Mr. Marcello was setby the former Human Resources Committee andapproved by the Board in December 2012. Therange for the NEOs other than the President andChief Executive Officer was established by theformer Human Resources Committee andapproved by the Board in 2006 and it has notchanged since then.

There are two components to performance-basedcompensation for all management employees,including the NEOs: fund determination and fundallocation. These components will be describedseparately.

Fund Determination: The maximumpercentage for funding is at the discretion of the Board, based on a recommendation by theCGHRC. The funds available for all managementemployees and the NEOs are a percentage of thetotal payout which would be payable assumingeach individual earned his or her maximumallowable short term incentive. In 2014, themaximum percentage of funds available forallocation for all management employees(including the NEOs) was set at 65% of this totalpotential payout. This determination was made bythe CGHRC, and recommended to, and approved


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by, the Board, by measuring the company’sperformance at the end of the year against variouscorporate performance targets and measures setat the beginning of the year.

Fund Allocation: The fund is allocated amongindividual executives on the basis of individualperformance. It is not an across the boardallocation. NEOs are assessed against theirperformance agreement based on objective andsubjective assessments. The CGHRC conductedand approved the assessment of the President and Chief Executive Officer, and approved theassessments and recommendations regarding the Chief Operating Officer and Executive VicePresident, Strategic Planning (including his roleduring the year as Chief Administration Officerand Chief Financial Officer), the Chief FinancialOfficer (Acting) (including his role during the yearas Vice President and Treasurer), the Senior VicePresident, Operations, the Senior Vice Presidentand Chief Investment and Pension Officer and the Senior Vice President, General Counsel and Chief Compliance Officer. No NEO ormanagement employee is allowed to receiveabove his or her maximum allowable short termincentive. A further discussion on the evaluation of performance of the NEOs is set out below in the section dealing with individual performance.

(a) Corporate Performance Measures and TargetsThe CGHRC, together with input from seniormanagement, develops Hydro One’s corporateperformance measures and targets annually at the end of each year for the following yearthrough the use of a balanced scorecard. A balanced scorecard is designed to measurecorporate performance broadly, covering all key aspects of corporate performance. Measuresincluded in the scorecard are designed to ensurethat the corporate strategy is achieved.

For 2014, the corporate performance measureswere tied to Hydro One’s corporate strategy which was updated in 2014. See “About HydroOne - Our Strategy” for additional information.Management and the CGHRC reviewed,considered and assessed the measures and targets to ensure they covered all key aspects ofcorporate performance and were robust enough to drive superior performance and corporatestrategy implementation. For 2014, the CGHRCdetermined that Hydro One should focus on fourstrategic objectives and 14 performance measuresand targets aligned to such objectives. TheCGHRC then recommended the measures andtargets to the full Board for approval. Thesemeasures and targets were based on Hydro One’skey strategic goals in the areas of (i) injury-freeworkplace, (ii) satisfying our customers, (iii)continuous improvement and cost effectiveness inthe building and maintaining reliable transmissionand distribution systems and (iv) maintaining acommercial culture that increases shareholdervalue.

The following table sets out Hydro One’scorporate performance measures for 2014, whichwere aligned to its strategic objectives and thetargets for each of those measures. In 2014, theBoard determined that, with respect to the targets,Hydro One met or exceeded eight of the targetsand six were not met. The context of those targetsis described in more detail under each strategicobjective heading below.


Strategic Objective Performance Measure Year-End

Actual Target

Injury-free Workplace Recordable Rate H 1.8 1.9(# of recordable injuries/illnesses per 200,000 hours worked)

Customer Satisfaction – Transmission 77 84(% satisfied)

Satisfying Customer Satisfaction - Distribution 85 87Our Customers (% satisfied)

Connection of New Services - Distribution H 97 90(% completed in < 5 days)

Unscheduled Estimated Bills H 1.2 1.8 (% of total bills issued)

No Bill Volume H 2.6 8.0(number of customers) (thousand)

Transmission Unit Costs H 2.7 2.9(OM&A/Gross Fixed Assets) (%)

Distribution Unit Costs 6.1 5.7(OM&A/Gross Fixed Assets) (%)

Customer Interruption Duration - Transmission 11.8 8.9(minutes per delivery point)

Customer Interruption Duration - Distribution 7.4 6.7(hours per customer)

Net Income After Tax ($M) H 749 668

Customer Service Recovery Cost ($M) 88.3 47.8

In-Service Capital – Transmission (% of Plan) H 99 85

In-Service Capital – Distribution (% of Plan) H 97 87

Legend H Better than plan (≥5%) On Plan Below Plan


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Maintaining aCommercial Culturethat IncreasesShareholder Value

ContinuousImprovement & Cost Effectiveness in the Building andMaintaining ReliableTransmission andDistribution Systems

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The 2014 scorecard is not weighted. Eachmeasure is key to driving corporate performance,and all of the measures are interrelated. In termsof assessing performance, the CGHRC is requiredto exercise judgment in weighing the results foreach measure and determining whether overallcorporate performance, as reflected throughscorecard performance, is met. The scores againstthese measures and the overall corporate scoreare not absolute determinants. The Board retainsthe right to assess the overall result by taking intoconsideration major accomplishments, challengesand shortfalls that may not be reflected in thescorecard and in doing so may exercise itsdiscretion to make adjustments to the score andthe determination of the Incentive Plan fund. If, on balance, scorecard performance is met orexceeded, the Incentive Plan fund may be fundedto a percentage of the maximum short termincentive payout, up to 100%, based on therecommendation of the CGHRC, but subject to the ultimate discretion of the Board. If, on balance,scorecard performance is not met, the CGHRC will determine and recommend a funding level,also subject to the ultimate discretion of the Board.In 2014, the Board considered the corporatescorecard results, as noted above, and the keyaccomplishments of the Company throughout theyear and determined, on balance and in theexercise of its discretion, the funding level shouldbe set at 65% of the maximum short term incentivefund. In accordance with the BPSAA, the fundingenvelope for the short term incentive for 2014cannot exceed the amount that was paid inaggregate in the performance pay cycle for 2011.In setting the funding level at 65% for 2014,Hydro One has complied with this requirement.

1. Injury-Free WorkplaceThe safety of our employees is paramount. For2014, Hydro One used the measure of all work-related injuries or illnesses as the performance

measure for this strategic objective. A “recordable”injury/illness is one of the following: medicalattention (treatment beyond first aid); modified work(restricted duties); lost time; or death. For 2014, theBoard set the target at 1.9 recordable injuries per200,000 hours worked for this measure. HydroOne exceeded this target.

2. Satisfying our CustomersIn 2014, Hydro One approached the objective ofcustomer satisfaction by addressing five measuresrelated to improving customer relations. Thesemeasures relate to transmission and distributioncustomer satisfaction and connection of newservices, as well as estimated bills and no billvolume, as part of our customer service recoveryproject. Our customer service recovery projectwas a result of billing issues Hydro Oneencountered due to the implementation in May of 2013 of its new customer information system.

a) Customer Satisfaction – TransmissionThis measure is to determine the degree to whichour transmission customers are satisfied with theservice they receive from our company. It is basedon survey results of customer surveys conducted onHydro One’s behalf by independent third parties.The survey is given to three major groups oftransmission customers. In 2014, we targeted atransmission customer satisfaction rate of 84%.We did not meet this target.

b) Customer Satisfaction – DistributionSimilar to the transmission customers, Hydro Onesurveys its distribution customers to assess thedegree to which they are satisfied with the servicethey receive from Hydro One. The results arisefrom surveys conducted on Hydro One’s behalf by independent third parties. This measure reflects the overall satisfaction levels of three major distribution customer segments, based ontransaction satisfaction levels, annual satisfaction


surveys and the meeting of OEB milestonesrespectively for the three segments. For 2014,Hydro One set a target for distribution customersatisfaction at 87%, and did well on thetransactional elements but did not meet this target on an overall basis.

c) Connection of New CustomersThis measure relates to distribution low voltageconnections that are reported annually to the OEB. It addresses our customers’ needs for a specificand timely connection date and assesses ourefficiency in connecting new customers. Itmeasures the percentage of connections for arequested new service (<750 volts). Theconnection must be completed within 5 businessdays from the day on which all applicable serviceconditions are satisfied, or at a later date agreedupon by the customer and Hydro One. Hydro Oneset a 2014 target of 90%, which it exceeded.

d) Unscheduled Estimated BillsWith respect to this measure, Hydro One seeks to track its ability to provide accurate bills to itscustomers. It tracks the percentage of totalcustomers that have received unscheduledestimates in any billing period. Hydro Oneestablished a target of 1.8% of all bills for thismeasure. We exceeded the target.

e) No Bill VolumeNo Bill Volume is a customer service measurerelated to the Company’s ability to provide timelybills to its customers. This measure tracks thenumber of customers who have not received a bill in three consecutive billing periods. Ourexpectation was to reach a volume of 8,000 no-bill customers by September 2014, and sustainthis level beyond that date. Hydro One exceededthis target.

3. Continuous Improvement and CostEffectivenessAs part of our strategic objectives to increaseproductivity through efficiency improvements andeffective management of costs, Hydro Onemeasures transmission unit cost and distributionunit cost and set targets for those costs. Regardingthe maintenance and reliability of the transmissionand distribution systems, Hydro One continues tobuild and retain public confidence and trust in itsoperations, as stewards of Ontario’s electricitygrid. In 2014, Hydro One continued its focus onthis strategic priority by investing in the key assetsof the electricity delivery system and by operatingthe existing system for customers in a safe, reliableand efficient fashion. Hydro One is conscious thatcommercial customers of all sizes require reliableservice to allow them to deliver their products andservices and that customers’ expectations are for areasonably limited duration when interruptionsoccur. Transmission and distribution reliability ismeasured through the duration of customerinterruptions.

a) Transmission Unit CostsFor 2014, the transmission unit cost measureshows the transmission business cost-effectivenessby comparing the ratio of OM&A spending togross fixed asset costs, using benchmarkinginitiatives. Hydro One set a target of 2.9% for2014, and exceeded the target.

b) Distribution Unit CostsSimilar to transmission unit cost, the distributionunit cost measure demonstrated the distributioncost-effectiveness by comparing the ratio ofOM&A spending to gross fixed assets costs, usingbenchmarking initiatives. For 2014, Hydro Oneset a target of 5.7%, but did not meet this target.


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c) Customer Interruption Duration – TransmissionThis measure monitors the reliability of thetransmission system by tracking the average lengthof unplanned interruptions (in minutes) to multiple-circuit supplied delivery points. Hydro One has set a target of 8.9 minutes per delivery point for2014. During 2014, Hydro One was aware thatit would miss the target, which was not indicativeof degrading reliability, but rather a result ofrefurbishing aging assets. In doing so, this resultedin occasions where load with a multi-circuit supplywas placed on single supply to accommodate the work program. This exposed the system tointerruptions if there was a loss of the singlesupply. Hydro One determined that it wasimportant to continue with the maintenanceprogram even if this would result in missing thetarget. Hydro One, in fact, did not meet thistarget.

d) Customer Interruption Duration – DistributionThis measure is an indicator of the distributionsystem reliability that expresses the average lengthof outages in hours that a customer can expect toexperience in the year. This measure excludesforce majeure events and loss of supply events(events caused by transmission system or otherdistributors). Hydro One set a target of 6.7 hoursper customer for this measure. In 2014, therewere numerous storm events which were notconsidered force majeure events andcomparatively more equipment outages thatresulted in higher than normal customerinterruptions. In the circumstances, we did notmeet this target.

4. Maintaining a Commercial Culturea) Net IncomeAchievement of strong financial performance ismeasured by a performance measure of targetedlevel of net income after tax. Our target was

$668 million net income after tax for 2014 and we exceeded our target.

b) Customer Service Recovery Cost As a result of billing issues that arose from theimplementation of our new customer informationsystem in 2013, the effects of which became acute in early 2014, Hydro One established thecustomer service recovery project to dedicate staffto resolve outstanding and any new billing issuesand stabilize the billing system. Hydro Oneanticipated, and fixed as a target, costs of $47.8 million (including revenue impacts) for thisproject. The project was completed in 2014 andthe customer information system is now insustainment mode. As the costs of the customerservice recovery project exceeded the target,Hydro One did not meet this anticipated target.

c) In-Service Capital – TransmissionThis new measure for 2014 evaluates how Hydro One is meeting its OEB targets for in-service capital. For our transmission business, the 2014 target of 85% of in-service capital to our business plan is based on historicalperformance, our increasing capital work programand the additional variability caused by externalcommitments and required approvals. Our 2014result shows that Hydro One exceeded the target.

d) In-Service Capital – DistributionFor our distribution business, Hydro One set the2014 target of 87% of in-service capital to ourbusiness plan based on historical performance,with adjustments, to reflect that our distributionbusiness has more storm-related capital spendingthan our transmission business, as well as theperformance of our smart meter and distributedgeneration capital work programs. Our 2014result was better than the target.


Overall Performance for 2014For 2014, the CGHRC determined that of the 14 targets, eight were exceeded and six were not met. In determining its recommendation to theBoard on the funding for the short term incentive,the CGHRC deliberated at length on the work-related fatality in late 2014 resulting from a motorvehicle collision. In setting the corporate scorecardfor 2014, the Board had decided that a workrelated fatality in 2014 could reduce the shortterm incentive fund by 50%. However, theCGHRC, in considering some keyaccomplishments for 2014, noted Hydro Onemade significant progress in terms of meeting itsstrategic objective of an injury free workplace asevidenced by the results of the 2014 scorecard.The CGHRC, in making its recommendation to theBoard, retained the discretion to consider otheraccomplishments and mitigating factors in settingthe short term incentive fund. In considering someof the key accomplishments in 2014, the CGHRCnoted Hydro One’s concerted and successfulresponse, through the customer service recoveryproject, to the billing issues that arose from theCustomer Information System, the signing of thehistoric SON agreement and its excellent in-service capital results. The CGHRC determinedand recommended to the Board that the short termincentive fund be set at 65% of the maximum shortterm incentive payout. The Board considered theCGHRC’s recommendation and decided that, in its assessment of the results of the corporatescorecard, on balance, and in consideration of the other accomplishments of Hydro One, toaccept the CGHRC’s recommendation andapproved that the short term incentive fund be set at 65% of the maximum short term incentivepayout. Accordingly, the funding at 65% of themaximum short term incentive payout was theavailable amount for distribution to managementemployees, including the NEOs.

(b) Individual PerformanceThe second component of determining the amountof short term incentive payments to be made toNEOs pursuant to the Incentive Plan is theirindividual performance. Individual targetperformance criteria are outlined in individualperformance agreements which include bothbroad corporate and individual specific targets.NEOs are expected to align their efforts with andadvance the corporate performance measures andtargets discussed above. The NEOs were requiredto provide visible leadership to develop andmaintain a safe and healthy workplace. As well,the NEOs were to provide leadership in improvingcustomer relationships. In addition, the NEOs, asorganizational leaders are held to certain definedaccountabilities, pursuant to an enhancedmanagerial framework for Hydro One called“Craft of Management”. Performance agreementsare entered into annually between the Presidentand Chief Executive Officer and his direct reports.The Board, in turn, annually approves theperformance agreement entered into between the President and Chief Executive Officer and theChair of the Board.

Potential awards for NEOs are expressed as apercentage of base salary as described above.

The actual award for each NEO was based on his or her relative achievement of specificindividual performance targets. These targets may be objective, numeric-based targets or moresubjective targets. They are linked to some or all of the corporate performance measures, tomanagerial accountability, and to measuresrelated to the NEO’s business unit and weredesigned to enable our company to promote and achieve its strategic plan. The evaluation of performance against the targets is important.Hydro One does not take a mechanistic approachto assessment. Each NEO is assessed objectively


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against his/her specific individual targets. Oncethis assessment has been completed, a secondassessment comparing relative achievement acrossthe NEOs is also conducted. This approachrequires judgment on the part of the President andChief Executive Officer and CGHRC with respectto the NEOs other than the President and ChiefExecutive Officer and the CGHRC with respect tothe President and Chief Executive Officer, butprovides a better assessment of performance sinceit considers both absolute performance (against aset of targets) and relative performance againstthe other NEOs (other than the President andChief Executive Officer). Using this approachmeans an NEO could meet all of his/her targetsbut receive less than his/her incentive maximum ifother NEOs performed better against their targets.

Mr. Marcello’s targets were quantitative andqualitative, with overall target weightingsattributed to these factors. The quantitative factors(overall total 50%) were: safety, customer,continuous improvement and cost effectiveness in the building and maintaining of reliabledistribution and transmission system andmaintaining a commercial culture that increasesshareholder value. These quantitative targets werethe same as and tied to achieving the CorporatePerformance Measures and targets describedabove. The qualitative factors (overall total 50%)and key elements of these factors were: strategy(ongoing review of corporate strategy includingidentification of strategic opportunities), risk (toensure the Board and management have a clear,timely and transparent view to known andemerging risks in order to apply appropriatemitigation), corporate reputation (to advance toCompany’s objectives and capitalize on emergingopportunities in the market by establishing andmaintaining effective and strategic relationships inthe electricity sector and the broader public sectorand private sector), succession planning (to

stabilize the executive organization structure),cultural transformation (to lead a culturaltransformation that entrenches measurement,accountability and performance), customer (to improve customer relationships to establish Hydro One as an accountable, responsive,knowledgeable and trusted partner), majorprojects (meet in-year LTEP commitments related totransmission development by pursuing commercialopportunities, engaging First Nations in HydroOne projects and working to further industryconsolidation) and leadership (to exhibit strongleadership to support achievement of Hydro One’sstrategic objectives, including strengthening HydroOne’s brand).

Mr. Struthers was the Chief AdministrationOfficer and Chief Financial Officer (CAO andCFO) until November 17, 2014 when he assumedthe role of Chief Operating Officer and ExecutiveVice President, Strategic Planning. As CAO andCFO, he had targets comprised of quantitativeand qualitative factors. The quantitative factors(overall total 70%) were as follows: injury-freeworkplace, satisfying our customers, building andmaintaining reliable distribution and transmissionsystems, maintaining a commercial culture thatincreases shareholder value and continuousimprovement and cost effectiveness. Thequalitative factors (overall total 30%) werecomprised of three key responsibilities: (i) strategicplanning and key priorities (increase shareholdervalue; drive a culture of safety and performance;improve service to internal customers; improvecorporate reputation; and leadership); (ii) servicefunction objectives (treasury and risk (obtain cost-effective financing to support capital projects);financial reporting (integrate acquired LDCs intoHydro One’s financial system); pension (provideoversight on the plan’s performance); regulatory(support successful distribution and transmissionrate applications); business planning (manage


the five year business plan process); outsourcing(complete the process to select the proponent(s) to provide the outsourcing services); fleet (reconfirm current fleet strategy to manage fleetcosts and meet operations support requirements);procurement (work with Hydro One’s engineeringgroup to update standards and reduce contractextensions); and real estate (complete the facilitiesoutsourcing)); (iii) management role (enhancing his and management’s relationship with the Boardand help drive Hydro One’s culture in support ofits core values).

Mr. Suleman, Mr. Smith, Mr. Cultraro andMr. Agostino each entered into performanceagreements that had three corporate focus areas:health and safety (to demonstrate commitment tothe success of our Journey to Zero initiatives);customer (to manage the business and operationsin a commercial manner the benefits the customer, the shareholder and Hydro One); andengagement (to create and sustain an environmentwhere employees can be fully engaged). As well,they each had individual focus areas related totheir specific areas of work. In each of these focusareas, these NEOs set out their specific initiativesfor the focus area, their plans or measures toimplement their initiatives and, how they wouldthey would achieve their measures in accordancewith our “Craft of Management” principles.

In 2014, the CGHRC and the Board assessed theperformance of Mr. Marcello. As well, the CGHRCreviewed the assessment of the performance of the other NEOs, and other direct reports to thePresident and Chief Executive Officer, from whichit made its own assessment. In making theirassessments, the CGHRC and the Board paidparticular attention to the corporate scorecardresults and their assessments of these results andthe personal performance and contributions ofeach of the NEOs to Hydro One throughout theyear.

With respect to Mr. Marcello, the CGHRC and the Board gave significant weight to his strongpersonal performance and certain personalaccomplishments, which include: improving thecorporate reputation through the customer servicerecovery project; restructuring of the company as a result of the departure of several seniorexecutives; achieving a significant culturaltransformation as reflected in the injury-free targetresults; effectively managed several externalreviews of Hydro One and delivered several highprofile projects including the historic agreementwith the Saugeen Ojibway Nation. On the basisof this assessment, Mr. Marcello was awarded ashort term incentive payment of $290,000, whichrepresents 85% of his maximum eligible award.

In its assessment of Mr. Struthers, who was theCAO and CFO until November 16, 2014, theCGHRC noted key accomplishments whichinclude: active management of the KPMG upsideopportunity assessment of Hydro One prepared onbehalf of the Council; improved fleet safety in2014; key performance indicators weredeveloped for our outsourcing strategy; attendedinvestor meetings to help raise cost effective debt;completed the outsourcing agreements for facilitiesand real estate and the services provided byInergi; and his transition into his significant newrole as Chief Operating Officer. Mr. Struthers’accomplishments resulted in a short term incentivepayment award of $180,000, which represents69% of his maximum eligible award.

Regarding Mr. Suleman, who was the VicePresident and Treasurer until November 16, 2014,the CGHRC considered the followingaccomplishments: obtained a cost effectiveinsurance program; managed the risk assessmentfunction; maintained contacts with investors andfunds raised by way of debt with proper oversight;provided creative support to the Bruce to Miltonlimited partnership with the Saugeen Ojibway


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Nation and its successful closing; managed thetreasury function strategically to obtain fair andreasonably priced debt issuances; and hissuccessful assumption of the role of Chief FinancialOfficer (Acting). In recognition of thisperformance, Mr. Suleman was given a short termincentive payment of $75,000, which represents69% of his maximum eligible award.

With respect to Mr. Smith, the CGHRC notedcertain accomplishments: a 20% improvement inmedical attention incidents in the business groupfor which he had oversight; the significantlyincreased volume of planned work completed and the reduction in the level of rework requiredon completed projects; the highest customersatisfaction rate to date for the OGCC in thetransmission customer survey; exceeded servicemetric targets in the lines and forestry groups; led the company in cost savings in response to thecustomer service recovery project; and improvedHydro One’s investment review process. Mr. Smithwas awarded a short term incentive payment of$125,000, which is 61% of his maximum eligibleaward.

Mr. Cultraro had a number of keyaccomplishments recognized by the CGHRC,including: good pension plan performance withreturns well exceeding the going concern discountrate; astute tactical investment and rebalancingdecisions were made during the year; strategicinvestment decisions during the year continued toprovide long term benefits; beneficial decisions onobtaining an actuarial valuation at the mostopportune time; and conducting an asset liabilitystudy to set the Hydro One pension fund’s assetmix and de-risking strategy for the long term. Inrecognition of these accomplishments, Mr. Cultraroreceived a short term incentive payment of$110,000, which is 73% of his maximum eligibleaward.

Regarding Mr. Agostino, the CGHRC consideredaccomplishments including his membership andcontributions to the steering committee of thecustomer service recovery project; his assistancein responses to the Ombudsman’s investigationregarding billing issues; his contributions to theexecutive team in addressing matters for theCouncil and the Premier’s Secretariat to provideinformation to the Secretariat; his contributions toregulatory compliance and developing the overallcompliance program; his continued spearheadingand support for Hydro One’s records managementprogram; and his contributions on key legalmatters such as the outsourcing transactions andLDC acquisitions. Based on these accomplish-ments, Mr. Agostino was given a short termincentive payment of $80,000, which is 53% of his maximum eligible award.

The determination of Incentive Plan amounts forthe NEOs is independent from the assessment ofbase salary adjustments. However, the final dollaramount of an annual Incentive Plan payment isimpacted by any changes to base salary since it is a percentage of base salary.

(3) BenefitsIn addition to the base salary and Incentive Plancompensation, as part of their compensationpackage, the NEOs also participate in the HydroOne registered pension plan and supplementarypension plan and participate in a flexible benefitsplan, which is available to all other managementemployees. The flexible benefits plan providesvarious benefits, including life insurance, vacationand health care benefits. Hydro One provides toeach executive and management employee certaincore benefits, which include basic life insurance,accident insurance, extended health benefits, outof country medical, dental, sick leave and longterm disability, pension and basic vacation. Theflexible benefit plan provides for credits for life


insurance and vacation calculated each plan yearon the individual’s base annual earnings in effectat the time of enrolment in the plan. Those flexiblebenefit plan credits may then be allocated by eachexecutive and management employee to purchaseadditional life insurance, take additional vacationdays (up to a cap), and/or contribute to a healthcare account. Unallocated credits are paid out atyear end, subject to withholding tax, to theemployee.

Benefits provided to NEOs, other than Mr.Cultraro, are the same as those provided to allother management employees whose start date is pre-2004 and could be higher or lower thanbargaining unit represented staff, depending onthe specific benefit. Benefits are relativelyindependent of base salary and Incentive Planpayments, although some are a percentage ofbase pay. Many health-related benefits are a flatrate and not related to base salary or IncentivePlan levels.

Pension benefits for NEOs, other than Mr.Cultraro, are identical to those of all otherexecutive and management staff in our companywhose start date is pre-2004, and are calculatedin a similar manner identical to all employees inour company. See “Pension Plan Benefits” below.

Mr. Cultraro’s benefits and pension benefits differfrom those of the other NEOs as Mr. Cultrarobecame an employee of Hydro One after January1, 2004 and his benefits and pension benefits are in accordance with the reduced benefits formanagement employees who became employeesof Hydro One after January 1, 2004.

Role of NEOs in Determining ExecutiveCompensationAn NEO does not play any part in determining his or her own compensation. The Senior Vice-President, People and Culture/Health, Safety andEnvironment, working with the Hay Group Limited,is responsible for providing recommendationsregarding compensation to the CGHRC consistentwith the Board approved compensation strategy.The CGHRC must then review, discuss, andultimately approve the base salary, Incentive Planpayment and benefits for all the NEOs (other thanthe President and Chief Executive Officer) basedon a recommendation by the President and Chief Executive Officer. With respect to thecompensation payable to the President and ChiefExecutive Officer, the CGHRC reviews, discussesand makes a recommendation to the Board, whomust consider, discuss and ultimately approve thefinal compensation level for the President andChief Executive Officer. In 2014, in addition tothe above recommendations, the CGHRC and theBoard considered the requirements of the BPSAAin determining the base salary and Incentive Planpayments for all the NEOs for 2014.


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The following table summarizes the compensation paid in 2014, 2013 and 2012 to the Chief ExecutiveOfficer, each individual who served as Chief Financial Officer and to each of the three other most highlypaid officers in 2014.

Name andPrincipalPosition

Year Salary($)

Non-equity incentive plancompensation ($)

PensionValue 7($)

All OtherCompensation

($)

Total Compensation

($)

C. Marcello2

President &CEO

A. Suleman3

CFO

S. Struthers4

COO

W. Smith5

Senior VicePresident,Operations

R. CultraroSenior VicePresident and ChiefInvestmentand PensionOfficer

J. Agostino6

Senior VicePresident,GeneralCounsel and ChiefComplianceOfficer

201420132012

201420132012

201420132012

201420132012

201420132012

201420132012

$525,000$525,000$300,000

$248,100$244,615$244,615

$366,430$375,000$325,000

$313,576$274,050$274,050

$250,000$250,000$250,000

$228,375$228,375$228,375

$290,000$170,625$156,000

$75,000$71,000$93,000

$180,000$135,000$169,000

$125,000$125,000$150,000

$110,000$110,000$130,000

$80,000$75,000$68,500

$411,000$2,889,000

($13,000)

$100,000$5,000

$29,000

$266,000$324,000$38,000

$101,000($6,000)$16,000

($19,000)$64,000

$104,000

$94,000$70,000$23,000

$0$0$0

$0$0$0

$0$0$0

$0$0$0

$0$0$0

$0$0$0

$1,226,000$3,584,625

$443,000

$423,100$320,615$366,615

$812,430$834,000$532,000

$539,576$393,050$440,050

$341,000$424,000$484,000

$402,375$373,375$319,875

$0$0$0

$0$0$0

$0$0$0

$0$0$0

$0$0$0

$0$0$0

Annualincentiveplans1

Long-termincentiveplans

1 Information in the Summary Compensation Tableis based on the year the incentive was earned.The incentive is generally earned in one yearand paid in the following year. Therefore, the information provided in the SummaryCompensation Table above differs from that

published under the Public Sector SalaryDisclosure Act (Ontario).

2 Effective January 1, 2013, Mr. Marcello wasappointed the President and Chief ExecutiveOfficer of Hydro One. Mr. Marcello also


became a director of Hydro One as well as theother subsidiary corporations within the HydroOne group of companies. As a result of hisappointment, Mr. Marcello’s compensationincreased commensurate with his new positionand his increased responsibilities. Mr. Marcellowas from February 25, 2014 until November17, 2014, the interim Chief Operating Officerfollowing the resignation of the former ChiefOperating Officer in February of 2014.

3 Effective November 17, 2014, Mr. Suleman,who was the Vice President and Treasurer, wasappointed Chief Financial Officer (Acting) aspart of an organizational restructuring, pendinga determination by the Board on the selection of new Chief Financial Officer. As a result of this restructuring and the new and addedresponsibilities for Mr. Suleman, his annualcompensation increased, from $244,615 to$280,000, commensurate with the position in anacting capacity, effective November 17, 2014.In July 2014, Hydro One moved from a monthlypay cycle for management employees to a bi-weekly pay cycle, paid in arrears. As a result ofthis pay cycle change, management employeeshad the option to take a transition adjustment for that two week period, subject to a repaymentobligation. Mr. Suleman took the transitionadjustment. As such, Mr. Suleman’s salary for the year reflects his previous annual salary, thetransition adjustment and his new salary.

4 Effective January 1, 2013, as part of anorganizational realignment to better deliver onkey priorities of Hydro One, Mr. Struthers wasappointed Chief Administration Officer andChief Financial Officer, which positions broughtunder Mr. Struthers oversight and direction of the shared services of Hydro One. As a result of this realignment and added responsibilities,

Mr. Struthers’ compensation increasedcommensurate with the position and increasedresponsibilities, effective January 1, 2013. On November 17, 2014, Mr. Struthers becamethe Chief Operating Officer and Executive Vice President, Strategic Planning as part oforganizational restructuring and took over the Chief Operating Officer position from Mr. Marcello. In taking on this significant role,Mr. Struthers became accountable for the end-to-end delivery of Hydro One’s work andimproving the efficiency and effectiveness ofHydro One’s operations. Additionally, in this role Mr. Struthers is accountable for Hydro One’swork as it relates to the Council on GovernmentAssets. As of November 17, 2014, Mr. Strutherscompensation increased, from $375,000 to$435,000, commensurate with this position andincreased responsibilities. In connection withHydro One’s move to a bi-weekly pay periodfrom a monthly pay period, managementemployees could elect to receive a transitionadjustment subject to a repayment obligation. As Mr. Struthers did not make such an election,notwithstanding the increase in salary close tothe year end, his reported base salary for 2014is slightly lower than in 2013.

5 Effective January 1, 2013, Mr. Smith, as part of the organizational realignment became theSenior Vice President, Planning and Operation.With the departure of the former ChiefOperating Officer in February 2014, as ofMarch 14, 2014, Mr. Smith took on a new role of Senior Vice President, Operations withincreased accountabilities and his annual basecompensation increased from $274,050 to$340,000. Mr. Smith did not take a transitionadjustment when Hydro One moved from amonthly pay period to a bi-weekly pay period.Mr. Smith retired effective December 31, 2014.


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6 Effective December 1, 2014, Mr. Agostino was appointed Senior Vice President, GeneralCounsel and Chief Compliance Officer withenhanced accountabilities in the compliance roleas part of the organizational restructuring. Mr.Agostino’s compensation increased to $250,000per year effective December 1, 2014. As HydroOne moved to a bi-weekly pay period withsalary payments made in arrears, this increasein compensation for the one month period in2014 is not reflected in the 2014 pay.

7 The pension value includes a combination ofannual current service cost as well as the pastservice impact of other compensating amountsas described in footnotes 2 and 3 to the definedbenefit pension plan table in the next section.The pension plan provides a benefit, in respectof all years of service, which is based on eachplan member’s highest average earnings at thetime of his or her termination or retirement.

None of the NEO’s are entitled to other benefits orperquisites in the aggregate amount that exceeds$50,000 or 10% of their respective annualsalaries.

Mr. Marcello did not receive any additionalcompensation for his services as a director ofHydro One and its subsidiaries.

Pension Plan Benefits

Defined Benefit Pension Plan Hydro One provides a defined benefit pensionplan to its employees. Each of the NEOsparticipates in the Hydro One Pension Plan(consisting of the Hydro One registered pensionplan and the supplementary pension plan). Thebenefits for these individuals are calculated in a consistent manner with all other Hydro Oneemployees, as described below.

For each year of credited service under the HydroOne Pension Plan, to a maximum of 35 years, thebenefit provided for each of the employees whoparticipate in the plan is equal to 2% of themember’s average base annual earnings duringthe 36 consecutive months (60 consecutive monthsfor management employees hired on or afterJanuary 1, 2004 and for employees representedby the Society of Energy Professionals hired on orafter November 17, 2005) when his or her baseannual earnings were highest. Base annualearnings are comprised of the member’s salaryand 50% of his or her short term incentive.

The approximate projected credited years ofservice that each NEO will have if he or she worksuntil the age of 65 is as follows: Mr. Marcello –35.0 years; Mr. Suleman – 24.4 years; Mr.Struthers – 24.0 years; Mr. Cultraro – 28.2 years.Mr. Smith retired on December 31, 2014 and hiscredited service at retirement is 34.2 years. Mr. Agostino is currently over age 65 and hiscredited service as at December 31, 2014 is 19.7years. This pension is reduced by 0.625% of themember’s average base annual earnings up to the average year’s maximum pensionableearnings during the 36 consecutive months (60consecutive months for management employeeshired after January 1, 2004 and for employeesrepresented by the Society of Energy Professionalswho were hired after November 17, 2005) whenhis or her base earnings were highest (thereduction is 0.500% for employees represented by the Society of Energy Professionals who werehired prior to November 17, 2005 and for allemployees represented by the Power Workers’Union). The reduction is intended to offset CanadaPension Plan (“CPP”) benefits.

The plan terms also include a bridge pensionwhich is payable from the date of retirement toage 65 for all members except for management


employees hired on or after January 1, 2004 andemployees represented by the Society of EnergyProfessionals hired on or after November 17,2005. The Hydro One Pension Plan provides forearly retirement with an unreduced pension at theearlier of age 65 and the attainment of years ofage plus continuous employment totalling 82 ormore (years of age plus credited service totalling85 for management employees hired on or afterJanuary 1, 2004 and for employees representedby the Society of Energy Professionals hired on orafter November 17, 2005). A plan member whois not eligible for an unreduced pension can retirewith a reduced pension any time after attainingage 55.

Pension benefits payable to pensioners,beneficiaries and terminated employees withdeferred pensions are increased annually,effective January 1 of each year equal to 100% of the increase in the Ontario consumer priceindex for the 12 month period ending in June of the previous year (75% for managementemployees hired on or after January 1, 2004 and for employees represented by the Society ofEnergy Professionals hired on or after November17, 2005). The normal form of pension for amember who does not have a spouse at retirementis a pension payable for life and guaranteed forfive years, payable to an estate if not paid to theretiree. The normal form of pension for a memberwho has a spouse at retirement is a pensionpayable for the life of the member, and continuingafter the member’s death to his or her spouse atthe rate of 66 2/3% of the amount the memberwas receiving.

Benefits payable under Hydro One’s registeredpension plan, similar to other entities, arerestricted by the Income Tax Act (Canada). This limit on benefits affects members whoseaverage annual earnings exceed approximately$155,000 in 2014. Participants whose pensionswould otherwise be restricted by the Income TaxAct (Canada) participate in an unregisteredsupplementary pension plan that provides benefitsequal to the difference between the Income TaxAct (Canada) maximum pension benefits and thebenefits determined in accordance with theformula set out in Hydro One’s registered pensionplan. The supplementary pension plan is unfundedand the additional retirement income is paid fromgeneral revenues. Hydro One’s obligations toparticipants under the supplementary pension plan are secured by a letter of credit.

The table below shows the following informationfor each NEO participating in the company’sdefined benefit pension arrangements: • Years of credited service as at December 31,

2014;• Estimated annual lifetime benefit payable for

service up to December 31, 2014 and up to thenormal retirement age of 65 (based on currentage as at December 31, 2014 for Mr. Smithand Mr. Agostino); and

• A reconciliation of the present value of thedefined benefit obligation from December 31,2013 to December 31, 2014. The present valueof the defined benefit obligations reflect theimpact of the annual bonus earned in the yeareven though it is paid in the following year.


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1 The opening present value of the defined benefitobligation is the value of the projected pensionearned for service at January 1, 2014. Thevalues have been determined using the sameactuarial assumptions used for determining thepension plan obligations at December 31, 2013as disclosed in the notes to the 2013consolidated financial statements, based on theactual earnings for 2013 and adjusted to reflectexpected increases in pensionable earnings.

2 The values shown under the column headedService Cost under Compensatory Change is thevalue of the projected pension earned for servicein the current fiscal year (reduced by the NEOsown contributions).

3 The values shown under the column headedOther under Compensatory Change is the valueof the increase or decrease in the present valueof the defined benefit obligation that relates toservice prior to the current fiscal year due to thedifferences between actual compensation for theyear and the actuarial assumption for the yearassumed at the end of the prior year.

4 The values shown under the column headed Non-Compensatory Change include the impactof amounts attributable to interest accruing on

the beginning-of-year obligation, changes in the actuarial assumptions, the NEOs owncontributions and any other experienced gainsand losses.

5 The closing present value of the defined benefitobligation is the value of the projected pensionearned for service to December 31, 2014. Thevalues have been determined using the sameactuarial assumptions used for determining thepension plan obligations at December 31, 2014as disclosed in the notes to the 2014consolidated financial statements, based on theactual earnings for 2014 and adjusted to reflectexpected increases in pensionable earnings.

Notes:• All members are currently vested in their pension

entitlements earned to December 31, 2014. • In accordance with Canadian generally

accepted accounting principles, the amountsabove make no allowance for the different taxtreatment of the portion of pension not paid fromthe registered or qualified pension plans.

• All amounts shown above are estimated basedon assumptions and represent contractualentitlements that may change over time.

• The method and assumptions used to determineestimated amounts will not be identical to the

Name Number ofyearscreditedservice At

12.31.2014At age 65

ServiceCost2

Other3

Annual benefits payable($)

Openingpresent valueof definedbenefit

obligation1($)

2014 Compensatorychange($)

Closingpresent valueof definedbenefit

obligation5($)

2014 Non-compensatory

change4($)

C. Marcello 27.1 yrs $281,000 $363,000 $6,555,000 $216,000 $195,000 $1,629,000 $8,595,000

A. Suleman 19.8 yrs $108,000 $133,000 $1,944,000 $82,000 $18,000 $409,000 $2,453,000

S. Struthers 14.9 yrs $125,000 $202,000 $2,106,000 $131,000 $135,000 $596,000 $2,968,000

W. Smith 34.2 yrs $249,000 $249,000 $4,228,000 $119,000 ($18,000) $1,667,000 $5,996,000

R. Cultraro 8.8 yrs $44,000 $141,000 $667,000 $67,000 ($86,000) $238,000 $886,000

J. Agostino 19.7 yrs $97,000 $97,000 $1,669,000 $71,000 $23,000 $196,000 $1,959,000

method and assumptions used by other issuersand, as a result, the figures may not be directlycomparable to other issuers.

Termination and Change of Control Benefits Each of Mr. Marcello, Mr. Struthers, Mr. Cultraroand Mr. Agostino is a party to an employmentagreement with Hydro One governing the terms of their employment. None of the NEOs have anyrights or receive benefits on a change of control of the company.

With respect to Mr. Marcello and Mr. Struthers, if their employment is terminated by Hydro Onewithout cause, each of Mr. Marcello and Mr.Struthers is entitled to receive an amount equal tohis base salary at the date of termination in equalmonthly instalments for a period of 24 months andto receive benefits over the same period (includingIncentive Plan payments equal to the average of the three previous Incentive Plan payments,payable in monthly instalments). Each of Mr. Marcello and Mr. Struthers would continue to earn credited service under the Hydro OnePension Plan during such 24-month period.Continuation of benefits will also continue until

expiry of the severance period, except fordisability insurance and accrual of vacation.

Regarding Mr. Cultraro, if his employment wereterminated by Hydro One without cause, he isentitled to a lump sum payment equivalent to 12months of base salary and to no otherentitlements.

For Mr. Agostino, if his employment wereterminated by Hydro One without cause, he isentitled to receive an amount equal to his basesalary at the date of termination in equal monthlyinstalments for a period of 20 months and toreceive benefits over the same period (includingIncentive Plan payments equal to the average ofthe three previous Incentive Plan payments,payable in monthly instalments). Mr. Agostinowould continue to earn credited service under the Hydro One Pension Plan during such 20-monthperiod.

The amount of salary and incentive plan benefitsexpected to be paid if Mr. Marcello, Mr. Struthers,Mr. Cultraro and Mr. Agostino were terminated onDecember 31, 2014 is summarized in thefollowing table.



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Name Base Salary 3 year average Total PaymentIncentive Payment

C. Marcello $1,050,000 $335,750 $1,385,750

S. Struthers $870,000 $320,666 $1,190,666

R. Cultraro $250,000 N/A $250,000

J. Agostino $416,666 $110,277 $526,943

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The following information summarizes the amountby which each NEO’s annual pension wouldincrease due to inclusion of such periods ofadditional credited service and any correspondingincrease in average annual earnings calculated atthe end of such periods.

Mr. Marcello’s annual pension accrued atDecember 31, 2014 would be expected toincrease by $80,000.

Mr. Struthers’s annual pension accrued atDecember 31, 2014 would be expected toincrease by $35,000.

Mr. Cultraro’s annual pension accrued atDecember 31, 2014 would be expected toincrease by $9,000.

Mr. Agostino’s annual pension accrued atDecember 31, 2014 would be expected toincrease by $15,000.

The payment levels have been determined basedon standard factors considered in terminationsituations, such as age, length of service,proximity to retirement and job level.

Mr. Marcello, Mr. Struthers, Mr. Cultraro and Mr.Agostino are not entitled to receive any paymentin the event of termination for cause or voluntarytermination.

Upon retirement, all NEOs are entitled to benefits,which include core health and dental coverageand life insurance applicable to all managementemployees employed at Hydro One. Thesebenefits are identical to the retirement benefitsprovided to other management employees in thecompany. No benefits are provided in the event ofa termination of employment for any other reasonin the NEO’s employment contract.

For the NEOs, there are no significant conditionsor obligations that apply to receiving any of thesebenefits or payments other than a standardcompany confidentiality agreement.

Director CompensationThe by-laws of Hydro One provide that directorsmay receive reasonable remuneration for theirservices, commensurate with their duties, togetherwith reimbursement for all reasonable expensesincurred in fulfilment of their duties, includingtravel expenses. The amount of such remunerationis determined by the Board from time to time. Thefollowing remuneration is currently paid todirectors:

The fees are reviewed periodically but have notbeen revised since 2001. The President and Chief Executive Officer is not entitled to these fees.Directors who travel large distances to attendBoard and Committee meetings also receive anallowance of $900 for each meeting or series ofmeetings. Directors are also reimbursed for traveland other expenses incurred for attendance atBoard and Committee meetings. Directors’ fees,less statutory deductions, are paid quarterly bydirect deposit or cheque as requested.

Ms. Sandra Pupatello was appointed Chair of theBoard on April 1, 2014. Ms. Pupatello replacedMr. James Arnett who held the position of Chair ofthe Board from March 31, 2008 until March 31,2014. The Chair receives annual remuneration of$150,000 per annum and does not receive anyadditional fees for serving as a director.

Retainer for directors $25,000 per annum

Retainer for Committee Chairs $3,000 per annum

Participation in Board and CommitteeMeetings$900 per meeting


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Name Fees Earned All other compensation1 Total

Sandra Pupatello $112,500.002 $0 $112,500.00Chair (April 1, 2014 to December 31, 2014)

Director $14,264.383 $0 $14,264.38(January 1, 2014 to March 31, 2014)

James Arnett $37,500.002 $0 $37,500.00Chair (January 1, 2014 to March 31, 2014)

Kathryn Bouey $67,600.00 $0 $67,600.00

George Cooke $62,972.59 $0 $62,972.59

Sally Daub5 $32,491.78 $0 $32,491.78

Catherine Karakatsanis $51,272.59 $0 $51,272.59

William Limbrick5 $42,450.69 $0 $42,450.69

Don MacKinnon $51,400.00 $0 $51,400.00

Tom Moss5 $37,950.69 $5,400.00 $43,350.69

Michael Mueller4 $19,371.23 $900.00 $20,271.23

Walter Murray4 $19,371.23 $1,800.00 $21,171.23

Robert Pace4 $16,671.23 $1,800.00 $18,471.23

Yezdi Pavri $61,000.00 $0 $61,000.00

Gale Rubenstein $61,300.00 $0 $61,300.00

Maureen Sabia5 $33,391.78 $0 $33,391.78

Douglas Speers4 $20,271.23 $3,600.00 $23,871.23

John Wiersma5 $35,250.69 $5,400.00 $40,650.69

Carole Workman5 $35,191.78 $5,400.00 $40,591.78

TOTAL $812,221.89 $24,300.00 $836,521.89

Director Compensation Table

(1) All other compensation is the cumulative travel allowance, described above, for attendance at meetings or series of meetings.(2) The Chair of the Board receives an annual remuneration of $150,000.00. Sandra Pupatello received $112,500.00 in

remuneration in 2014, which is her prorated share of earned fees as Chair of the Board from April 1, 2014 to December 31,2014. James Arnett received $37,500.00 in remuneration in 2014, which is his prorated share of earned fees as Chair of theBoard from January 1, 2014 to March 31, 2014.

(3) Sandra Pupatello received $14,264.38 in 2014, which represents fees earned as a Member of the Board from January 1, 2014to March 31, 2014.

(4) Michael Mueller, Walter Murray, Robert Pace and Douglas Speers were members of the Board from January 1, 2014 until April11, 2014.

(5) William Limbrick, Tom Moss and John Wiersma were elected to the Board on April 11, 2014. Sally Daub, Maureen Sabia andCarole Workman were elected to the Board on April 25, 2014.


The following table summarizes the compensation earned in 2014 by the directors of Hydro One.

122 HYDRO ONE INC.




The auditor of our company is KPMG LLP.


AUDIT, FINANCE AND PENSION INVESTMENT COMMITTEE INFORMATION

The Audit, Finance and PensionInvestment Committee’s Charter Our Audit, Finance and Pension InvestmentCommittee’s mandate is attached hereto asAppendix “A”, which Appendix is herebyincorporated by reference. The Board amended itsBoard Committee Structure and Membership onMay 6, 2014. The amended Committee Structureincluded the amalgamation of the Audit andFinance Committee with the Investment-PensionCommittee and was renamed the Audit, Financeand Pension Investment Committee. The Audit,Finance and Pension Investment Committee’smandate was reviewed on June 24, 2014.

Composition of the Audit, Financeand Pension Investment Committee As at December 31, 2014, the members of ourAudit, Finance and Pension Investment Committeewere George Cooke (Chair), Sally Daub, DonMacKinnon, Yezdi Pavri, Maureen Sabia andCarole Workman. Mr. Cooke was appointedChair of the Committee on May 6, 2014, havingserved on the Audit and Finance Committee sinceFebruary 11, 2010. Mr. Pavri has served on theAudit and Finance Committee since December 13,2012. Ms. Daub, Mr. MacKinnon, Miss Sabiaand Ms. Workman were appointed as members of the Committee by the Board on May 6, 2014.All members are independent, and all membersare financially literate as such terms are definedunder applicable Canadian securities legislation.In respect of the current members of the Audit,Finance and Pension Investment Committee, theboard determined that at least one of themembers, being the current Chair of the Audit,Finance and Pension Investment Committee, Mr. George Cooke, is qualified as an “auditcommittee financial expert”, and that all membersof the Audit, Finance and Pension Investment

Committee are independent under the ExchangeAct and the listing standards of the NYSE.

Relevant Education and Experience In addition to each member’s general businessexperience, the education and experience of eachAudit, Finance and Pension Investment Committeemember who was serving as a member of theAudit, Finance and Pension Investment Committeeon December 31, 2014 that is relevant to theperformance of his or her responsibilities as anAudit, Finance and Pension Investment Committeemember is described below.

Mr. Cooke is President, Martello AssociatesConsulting, a business strategy consulting firm,and on October 1, 2013 he was appointed as the Chair of the Board of Directors of OMERSAdministration Corporation. OMERS is one ofCanada’s largest pension funds and the OMERSAdministration Corporation is responsible forpension services and administration, investments,and plan valuation. Mr. Cooke is the formerPresident and CEO, The Dominion of CanadaGeneral Insurance Company (“The Dominion”), a position he held from 1992 when he joined thecompany to August 2012. In August 2012, Mr. Cooke retired from his role as President of The Dominion and continued to hold the positionof Chief Executive Officer of the company untilDecember 31, 2012. Prior to his appointment with The Dominion, Mr. Cooke was Vice President(Ontario Division), S.A. Murray Consulting Inc. (a government relations consulting firm) between1990 and 1992. His previous experience alsoincludes Special Advisor, Policy to the OntarioDeputy Premier and Treasurer (1989-1990),General Manager, Ontario Automobile InsuranceBoard (1988-1989), and positions with the OEB(1980-1988). Mr. Cooke was a member of the

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Board of Directors of Atomic Energy CanadaLimited (1995 to 1999) and a member of theAudit Committee. He obtained a Bachelor of Artsdegree (Hons.) in Political Studies (1975) and aMaster’s of Business Administration degree (1977)from Queen’s University, Kingston, Ontario. Healso holds an Honorary Doctor of Laws degree(1999) from Assumption University in Windsor.Mr. Cooke was a member of the Board ofDirectors of The Dominion of Canada GeneralInsurance Company and the Insurance Bureau ofCanada and was also an Executive Vice Presidentwith E-L Financial Corporation Limited.

Ms. Daub is a director of ViXS Systems Inc.(“ViXS”), a leading semiconductor companyheadquartered in Toronto, Ontario and served asthe President and Chief Executive Officer of ViXSfrom 2001 until February 2015. Having taken the company public on the TSX in July 2013, Ms. Daub has consistently been recognized forher entrepreneurial and business expertise,including: Women’s Executive Network: Canada’sMost Powerful Women: Top 100; RBC Women of Influence, Trailblazer Category; and PROFITMagazine’s Top 100 Women Entrepreneur.Trained as a chemical engineer and lawyer, withdegrees from University of Ottawa and Dalhousierespectively, Ms. Daub began her career as apatent attorney both at the law firm of Smart & Biggar and Nortel Networks, where shespecialized in IP licensing, strategy, developmentand management. Directly prior to joining ViXS,Ms. Daub served as Vice President and ChiefLegal Counsel for ATI Technologies, a graphicschips supplier. Ms. Daub is also a registeredpatent agent in both Canada and the UnitedStates. Previously she has also served as Chair of the Small Business Agency of Ontario (part ofwhat is now the Ontario Ministry of EconomicDevelopment, Trade and Employment) and as aboard member of the Information Technology

Association of Canada and the GlobalSemiconductor Association.

Mr. MacKinnon has been President of the PowerWorkers’ Union, an electricity industry workersunion, since May 2000 and a lineman by tradesince 1971. He was Vice-President of the PowerWorkers’ Union for 11 years prior to beingelected President. In 2000, Mr. MacKinnon wasappointed by the Minister of Energy, Science andTechnology to the Electricity Transition Committee.He was a member of the Board of Directors of theElectrical and Utilities Safety Association and theRetail Management Board of Ontario Hydro. In2003, Mr. MacKinnon was appointed by theMinister of Energy to the government’s ElectricityConservation and Supply Task Force. In 2005, Mr. MacKinnon became a member of theCanadian Nuclear Association’s Board ofDirectors. In 2007, he became a member of theNational Round Table on the Environment and the Economy, and in October 2011 became amember of the Advisory Committee of the Centrefor Labour Management Relations at RyersonUniversity. Mr. MacKinnon is a member of theBoard of Plug’n Drive Ontario and a member ofthe Board Advisory Council of the WaterlooInstitute for Sustainable Energy (WISE), Universityof Waterloo. Most recently, he became a memberof the Advisory Board of the Ivey Energy Policyand Management Centre.

Mr. Pavri is a Chartered Accountant, a formerVice-Chairman (June 2010 - June 2012), and aformer Toronto Managing Partner (June 2004 -May 2010) of Deloitte Canada, a leadingprofessional services firm for audit, tax, consultingand financial advisory services. Mr. Pavri'sexperience with Deloitte Canada has includedoverall responsibility for a number of the firm's keyclients in the financial, retail and governmentalsectors. Between 1990-2004, Mr. Pavri was


National Managing Partner for Deloitte Canada'sEnterprise Risk Services group. Mr. Pavri holds a B. Technology from the Indian Institute ofTechnology (Aeronautical Engineering) 1972; a M.Sc. from the Imperial College, LondonUniversity (Thermal Power Engineering) 1974; andobtained his Chartered Accountant accreditationin 1979 while he was an accountant with BinderHamlyn, Chartered Accountants, London, UK(1974-1979). In 1979, Mr. Pavri joined ToucheRoss in Toronto as an accountant. He is a Fellowof the Institute of Chartered Accountants inEngland and Wales, and is also a Fellow of theInstitute of Chartered Accountants of Ontario.

Maureen Sabia is the Non-Executive Chairman of the Board of Directors of the Canadian TireCorporation (March 8, 2007 – present), andPresident, Maureen Sabia International Inc., aconsulting firm. Miss Sabia is also a director ofCanadian Tire Bank where she serves on its AuditCommittee and immediate past Chairman of theForeign Affairs and International Trade CanadaDepartmental Audit Committee. Miss Sabia co-authored “Integrity in the Spotlight – Opportunitiesfor Audit Committees” published in 2002, and“Integrity in the Spotlight – Audit Committees in aHigh Risk World” published in 2005. Miss Sabiawas a member of the Board of Trustees of BrockUniversity where she also served as Chairman of its Audit Committee, until mid 2014 and is amember of the Leadership Council of the PerimeterInstitute. Miss Sabia is a lawyer and has hadcareers in the public and private sectors andserved as the Chairman of the Export DevelopmentCorporation. She is past Chairman of the AuditCommittee of Canadian Tire Corporation andimmediate past Vice-Chairman of the PublicAccountants Council for the Province of Ontario.Miss Sabia was formerly a director of GulfCanada Resources Limited, Hollinger Inc.,Laurentian General Insurance Company Inc.,

O & Y FPT Inc., O & Y Properties Corporation and Skyjack Inc. She has been a member of theBoard of Governors of the University of Guelph,Chairman of the Sunnybrook Medical CentreFoundation and a member of the Board of Trusteesfor Sunnybrook Medical Centre. In 2011, MissSabia was appointed an Officer of the Order ofCanada. She holds a J.D. from the Faculty of Lawof the University of Toronto, an Honours Bachelorof Arts from McGill University, and has beenawarded two honorary LL.Ds. She is an Officer of the Order of Canada.

Ms. Workman is a Chartered ProfessionalAccountant (Chartered Accountant). She is amember of the Board of Allstate Insurance ofCanada and is Chair of their Audit Committee and Compliance Committee. She is a member of The Ottawa Hospital Board of Directors, PastChair of the Board, and a member of their Auditand Finance Committee. She served 7 years as a member of Hydro Ottawa, chaired the whollyowned Local Distribution Company Board andserved as a member of the Audit Committee. She was also a member and Chair of theCanadian University Insurance ExchangeReciprocal for many years. She had a long career in executive and financial managementand served the University of Ottawa for 24 yearsas its Chief Financial Officer and Vice President,Finance & Administration until her retirement in2004. Ms. Workman has a B. Commerce and aMasters of Public Administration and completedthe Harvard International Management Program.


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Audit, Finance and PensionInvestment Committee Oversight There have been no recommendations of ourAudit, Finance and Pension Investment Committeeto nominate or compensate an external auditorwhich has not been adopted by our Board.

Pre-Approval Policies andProcedures In accordance with the provisions of its mandate,the Audit, Finance and Pension Investment Committee ratifies all non-audit services, as pre-approved by the Committee Chair, to be providedto our company by its external auditor.

(1) The nature of services rendered were: audit of the Hydro One Pension Plan, audit of the Hydro One Employees’ andPensioners’ Charity Trust, audit of the Apprenticeship Enhancement Fund Audit, French translations, and executive expensereviews.

(2) The nature of services rendered were: audit of the Hydro One Pension Plan, audit of the Hydro One Employees’ andPensioners’ Charity Trust, audit of the Apprenticeship Enhancement Fund Audit, French translations, incremental proceduresperformed over implementation of the Customer Information System, and executive expense reviews.

(3) These fees were related to a review of the sufficiency of Hydro One’s documentation of the controls and procedures identifiedas addressing certain additional laws and regulations as a result of becoming an SEC registrant.

External Auditor Service Fees

Fiscal 2014 Fiscal 2013

Type of Fees Fees % of Total Fees % of Total

Audit Fees $735, 776 84.1% $807,176 78.1%

Audit-Related Fees 139,0831 15.9% 204,0832 19.8%

Tax Fees — — % — — %

All Other Fees3 — — % 21,714 2.1%

Total $874,859 100% $1,032,973 100%




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Board of Directors The Board has undertaken an independenceassessment and determined that, except as notedbelow, all of Hydro One’s current directors are“independent” within the meaning of the rulesadopted by the Canadian SecuritiesAdministrators (the “CSA”). Mr. CarmineMarcello, who is the President and Chief ExecutiveOfficer of our company and a member of theBoard, is not independent as he is an executiveofficer of our company. In addition, Ms. SandraPupatello, the Chair of our Board, is also notconsidered independent as she acts as our Chairand accordingly is considered an executive officerof our company.

The Board has separated the roles of Chair andChief Executive Officer. The prime responsibility of the Chair of the Board is to provide leadershipto the Board and to enhance Board effectiveness. The Chair, as the presiding member of the Board,also ensures that the relationships between theBoard, management, the shareholder and otherstakeholders are effective, efficient and further the best interests of our company. The Chair alsoencourages input and significant participation ofindependent directors in the leadership of ourcompany.

Directors hold regularly scheduled meetings at which members of management are not inattendance. During 2014, twelve such sessionswithout management were held at Boardmeetings. Each Committee of the Board also holds regular in-camera sessions withoutmanagement present. As well, the Audit, Financeand Pension Investment Committee regularly holdssuch sessions with the external auditors and withthe internal auditor. The Chair of the Audit,Finance and Pension Investment Committee meetsfour times a year with the internal auditor. Thesesessions encourage open and candid discussionamong the directors including among independentdirectors.


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Summary of Attendance of Directors The following table summarizes the attendance of individual directors at meetings of the Board heldduring the 12-month period ending December 31, 2014.

(1) Mr. Arnett resigned from the Board on April 1, 2014 and four meetings of the Board were held in 2014 prior to hisresignation from the Board.

(2) Mr. Mueller, Mr. Murray, Mr. Pace and Mr. Speers were members of the Board until April 11, 2014 when they were not re-elected by the shareholder. Four meetings of the Board were held in 2014 prior to that date.

(3) Ms. Daub, Miss Sabia and Ms. Workman were elected to the Board on April 25, 2014 and eleven meetings of the Boardwere held in 2014 after their election to the Board.

(4) Mr. Limbrick, Mr. Moss and Mr. Wiersma were elected to the Board on April 11, 2014 and 12 meetings were held in 2014after their election to the Board.

(5) Mr. MacKinnon was not in attendance for two meetings of the Board because these meetings solely addressed labour relationsmatters and, as President of the PWU, there was a conflict of interest that precluded his attendance. Those meetings aretherefore not included in the total number of Board meetings Mr. MacKinnon could have attended.

Director Board Meetings Attended

Sandra Pupatello 16 of 16

James Arnett1 4 of 4

Kathryn Bouey 16 of 16

George Cooke 16 of 16

Sally Daub3 10 of 11

Catherine Karakatsanis 11 of 16

William Limbrick4 11 of 12

Don MacKinnon5 14 of 14

Carmine Marcello 16 of 16

Tom Moss4 11 of 12

Michael Mueller2 4 of 4

Walter Murray2 4 of 4

Robert Pace2 4 of 4

Yezdi Pavri 16 of 16

Gale Rubenstein 14 of 16

Maureen Sabia3 8 of 11

Douglas Speers2 4 of 4

John Wiersma4 8 of 12

Carole Workman3 11 of 11


Board Mandate The Board is responsible for the stewardship of our company and the supervision of themanagement of the business and affairs of ourcompany. The Board’s accountabilities andresponsibilities include development of ourcompany’s approach to corporate governance, the adoption of a strategic plan and oversight of risk management, as well as oversight of thecompany’s pension plan. The Board has adopteda written mandate, the text of which is set out asAppendix “B” and which is hereby incorporatedby reference.

Position Descriptions The Board has adopted formal positiondescriptions for the Chair of the Board and theBoard Committee Chairs. The position descriptionsof each Committee Chair are set out in theCommittees’ mandates. In general, CommitteeChairs are responsible for the leadership of theirCommittee as well as reporting to the Board onbehalf of the Committee. The Board has alsoadopted a position description for the Presidentand Chief Executive Officer, which sets out the key roles and responsibilities for that position.

Committees of the Board (as at December 31,2014)The Board has established six standing committeesof the Board and delegates certain of itsenumerated responsibilities to each of theCommittees. Notwithstanding this delegation,

the Board retains its oversight function andultimate responsibility for all matters delegated tocommittees.

The six standing committees of the Board are theAudit, Finance and Pension Investment Committee,the Business Transformation Committee, theCorporate Governance and Human ResourcesCommittee, the Health, Safety and EnvironmentCommittee, the Regulatory and Public PolicyCommittee, and the Strategy Committee. The rolesand responsibilities of each Committee are set outin formal written mandates. These mandates arereviewed at least annually to ensure that theyreflect best practices as well as applicableregulatory requirements. In 2014, the Committeestructure was revised to support the efficientoperation of the Committees and the Board’soversight of the business of the company. A brief summary of each of the Committees’responsibilities follows.

Audit, Finance and Pension Investment CommitteeThe Audit, Finance and Pension InvestmentCommittee is composed entirely of independentdirectors or directors who are exempt from suchindependence requirements as required by theCSA and U.S. rules (for more information, see the mandate of the Audit, Finance and PensionInvestment Committee which is attached and thediscussion concerning the composition of theAudit, Finance and Pension Investment Committeeabove). The Audit, Finance and Pension Investment

Directors’ Board Memberships in Other Reporting Issuers

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Director Reporting Issuer

Maureen Sabia Canadian Tire Corporation Limited

Sally Daub ViXS Systems Inc.

Sandra Pupatello Martinrea International Inc.

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Committee oversees the integrity of accountingpolicies and financial reporting, internal controls,internal audit, financial risk exposures, financialcompliance and ethics policies. Concurrent withour company’s SEC registration in 2013, themandate of the Audit, Finance and PensionInvestment Committee was updated to ensurecompliance with U.S. securities legislation. Inaddition, the Audit, Finance and PensionInvestment Committee assists the Board in fulfillingits oversight responsibilities in all matters related to the Hydro One Pension Plan including theHydro One Pension Fund.

Business Transformation Committee The Business Transformation Committee iscomposed entirely of independent directors andwas first established as an ad hoc advisoryCommittee of the Board specifically to assist theBoard in its oversight responsibility on mattersrelated to our company’s Cornerstone project.

In May 2009, the Committee’s mandate wasamended to include oversight responsibility for all matters related to the “ADS (“Smart Grid”) and Continuous Innovation Strategy”. In 2010, the Committee’s mandate was further amended to include oversight responsibility for all mattersrelated to the planning, development andimplementation of major transmission system or distribution projects including the projectsdescribed in the Corporation’s Green EnergyImplementation Plan.

Corporate Governance and Human ResourcesCommitteeThe Corporate Governance and Human ResourcesCommittee is composed entirely of independentdirectors. The Corporate Governance and HumanResources Committee acts as the nominatingcommittee of the Board and recommends directorcandidates, committee assignments, director

compensation, and corporate governance policyfor committees and the Board as a whole. TheCorporate Governance and Human ResourcesCommittee reviews the general and specificcriteria applicable to candidates to be consideredfor nomination to the Board. The objective of thisreview is to maintain the composition of the Boardin a way that provides the best mix of skills andexperience to guide the long-term strategy andongoing business operations of our company. The Corporate Governance and Human ResourcesCommittee leads an annual evaluation of theBoard and makes recommendations onmodifications of the evaluation process.

In addition, the Corporate Governance andHuman Resources Committee recommendscompensation policy for senior managers, leadsthe performance review of the President and ChiefExecutive Officer, and recommends bargainingstrategy with respect to the unions. In this regard,the Corporate Governance and Human ResourcesCommittee also reviews succession planning andthe recommendations for the appointment ofpersons to senior executive positions. TheCorporate Governance and Human ResourcesCommittee retained Hugessen Consulting Inc. in2014 to advise the Committee on the developmentof Hydro One’s corporate scorecard andcompensation matters, and to provide advice onthe year end scorecard results and compensationmatters. In 2013, Hugessen Consulting Inc. alsoprovided to the former Human ResourcesCommittee consulting services on matters ofcompensation. For additional information relatingto the compensation of our company’s seniorexecutives, see “Statement of ExecutiveCompensation”.

Health, Safety and Environment CommitteeThe Health, Safety and Environment Committeeadvises the Board on health, safety and


environment policies and standards, overseescompliance with health, safety and environmentregulations at our company, and reviews andreports to the Board on our company’s emergencypreparedness.

Regulatory and Public Policy CommitteeThe Regulatory and Public Policy Committeemonitors our company’s compliance withregulatory requirements and related risk, reviewsrelated policies and generally oversees processesand procedures related to regulatory complianceat our company. The Regulatory and Public PolicyCommittee also advises the Board on public policymatters and corporate social responsibility issues.

Strategy CommitteeThe Strategy Committee was established in 2014to assist the Board with matters relating to theCouncil and generally, as the Board may delegateto it from time to time, to assist the Board infulfilling its oversight responsibility for strategicplanning as set out in the Board mandate.

Orientation and Continuing Education Hydro One’s “The Director Orientation andContinuing Education Program” was established in accordance with the principles set out in theBusiness Corporations Act (Ontario), NationalPolicy 58-201: Corporate GovernanceGuidelines, the mandate of the Board and themandates of the Corporate Governance andHuman Resources and Audit, Finance and PensionInvestment Committees. The Director Orientationand Continuing Education Program consists of twoelements: the New Director Orientation Programand the Continuing Director Education Program.The New Director Orientation Program consists of a Hydro One Directors’ Guide, which providesan overview of the key organizational, financial,regulatory, and operational aspects of ourcompany. The Directors’ Guide also contains

information on the structure of the Board and itscommittees, committee mandates and generalinformation on a director’s obligations. Inaddition, new directors receive orientationsessions with the Chair, the President and ChiefExecutive Officer and members of the seniormanagement team as well as tours of ourcompany’s facilities. The orientation sessionsfamiliarize directors with Hydro One’s strategicplans, its significant financial, accounting and riskmanagement issues, its compliance programs, itsPension Plan and the directors’ obligations as planfiduciaries, and its Code of Business Conduct.

The Continuing Director Education Programincludes, on an ongoing basis, as part of regularBoard and Committee meetings, informationbriefings/education sessions, presentations andupdates from senior management and externalspeakers on relevant topics related to ourcompany’s business. These informationitems/education sessions are either suggested by management or may be requested by members of the Board. As well, directors receiveinformation from management in response to anyactions arising at a Board meeting or otherwise.The Continuing Director Education Program alsoincludes articles and other information fromrelevant publications, which are forwarded todirectors, visits to Hydro One facilities, and,attendance at industry events and conferences and seminars which are relevant externaleducation opportunities or general courses ofinterest.

Ethical Business Conduct The Board has adopted a written Code of BusinessConduct (the “Code”). The Code sets out acomprehensive set of principles and expectationsrelating to ethical conduct, conflicts of interest andcompliance with laws. The Code is part of HydroOne’s internal control framework and applies to


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all of Hydro One’s directors, officers andemployees. The Code also applies to Hydro One’sagents, consultants, contractors and businesspartners, to the extent feasible. The Code is postedon the corporate intranet site and on the externalcorporate website at www.HydroOne.com.

Our company has a Corporate Ethics Officer who is accountable for making sure that theappropriate actions are taken to investigate andresolve known or suspected violations of the Code,and for ensuring the tracking and reporting of allviolations. The Board monitors compliance withthe Code through the Corporate Governance andHuman Resources Committee and the Audit,Finance and Pension Investment Committee, towhom the Corporate Ethics Officer reports. ThePresident and Chief Executive Officer is ultimatelyresponsible for our company’s compliance with the Code. The Board also abides by a conflict ofinterest policy which requires directors to exerciseindependent judgment when consideringtransactions and contracts in respect of which a director has a material interest.

Concurrent with our company’s SEC registration in 2013, the Code was updated to ensurecompliance with U.S. securities legislation, toreflect changes in Hydro One’s organizationalstructure, and to represent advancements incurrent best corporate governance and ethicspractices. The revised Code reflects current bestgovernance and ethics practices, including theavailability of a third-party hotline for theanonymous reporting of suspected violations of the Code including any accounting, internalaccounting controls or auditing matters. The document can be found at:www.hydroone.com/Careers/Documents/Code_of_Business_Conduct.pdf.

Board, Committee and Director AssessmentsA process is in place for evaluating theeffectiveness of the Board and its Committees. The process consists of a long-form and short-formevaluation process. The long-form Boardevaluation process consists of three writtenquestionnaires: Board, Individual Director, andCommittee Assessments of the Board. The BoardAssessment addresses the areas of Boardresponsibility, operation and effectiveness. The Individual Director Assessment allows eachdirector to identify areas for improved individualdevelopment and performance. The CommitteeAssessment addresses areas of committeeoperations and allows each Committee member to identify areas for improved performance.

In alternate years, a short-form Board evaluationprocess consisting of a one-page questionnaire inwhich Board members provide comments on anyissues that may be of concern to them, iscompleted.

In addition to the written questionnaires, the Chair of the Board also meets annually with eachdirector about individual performance and theeffectiveness of the Board and Committees.

The responses to each questionnaire are compiledin summary reports, which are reviewed by theCorporate Governance and Human ResourcesCommittee to determine what, if any, actions mayneed to be taken. The Chair of the CorporateGovernance and Human Resources Committeeprovides a report on the summary reports to theBoard.


Board and Executive CompositionOur company’s Board is elected annually by itssole shareholder, and it is the sole shareholderthat determines the board composition and theterm for the directors. The shareholder, and theCompany, does not pre-set a term for the directors,though it is a one year term, unless re-elected atthe annual election. Seven of the 14 members ofour Board, or 50%, are women.

In accordance with our Corporate Diversity andInclusiveness Policy, we strive for an inclusivecorporate culture where all employees are valuedand have equal access to opportunities and inparticular we strive to ensure that our genderdiversity is appropriately reflected at all levels of the corporation including executive officerpositions after taking into account all relevant factors, such as merit, capability and equaltreatment of employees. Of the executive officersacross Hydro One and its major subsidiaries,approximately 28%, or seven of 25 seniorexecutive positions, are women.

Targets are not in place for either Board positionsor executive officer positions.


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APPENDIX “A”

APPENDIX “A”

Mandate1. Pursuant to By-Law No. 1 of Hydro One Inc.

(the “Corporation”), a consolidated committeeof the directors to be known as the Audit,Finance and Pension Investment Committee(the “Committee”), being an amalgamation of the previous Audit and Finance Committeeand the Investment-Pension Committee, ishereby established to assist the Board in its monitoring of, and compliance withapplicable laws and regulations relating to,the Corporation’s:

(a) financial reporting and disclosure; and

(b) Pension Plan and Fund.

Committee Composition2. The Committee shall be composed of a

minimum of four directors, none of whom shall be an officer of the Corporation, andhave membership attributes consistent withapplicable requirements under Canadiansecurities laws, U.S. federal securities lawsand the rules of any stock exchange on which the Corporation’s securities are listed,including:

• Independence. The Committee shall becomprised of directors who shall meet theindependence and audit committeecomposition requirements set forth byapplicable securities regulatory authorities,stock exchanges or any governmental orregulatory body exercising authority over the Corporation, as in effect from time to time.Without limiting the generality of the

foregoing, a member cannot acceptconsulting, advisory or compensatory fees,other than compensation for directors’ feesand expenses, from the Corporation.

• Financial Literacy. All members are to befinancially literate (or shall become financiallyliterate within a reasonable period of timeafter appointment to the Committee). Amember is financially literate if he or she hasthe ability to read and understand a set offinancial statements that present a breadthand level of complexity of accounting issuesthat are generally comparable to the breadthand complexity of issues that can reasonablybe expected to be raised by the Corporation’sfinancial statements.

• Audit Committee Financial Expert. At least one member of the Committee shall bean “audit committee financial expert” withinthe meaning of applicable U.S. federalsecurities laws.

3. The members of the Committee shall beappointed or re-appointed at theOrganizational Meeting of the Board ofDirectors (the “Board”) immediately followingeach annual meeting of the Shareholder of theCorporation. Each member of the Committeeshall continue to be a member thereof until hisor her successor is appointed, unless suchmember shall resign or be removed by theBoard or shall cease to be a director of theCorporation. Where a vacancy occurs at anytime in the membership of the Committee, itmay be filled by the Board and shall be filled

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by the Board if the membership of theCommittee is less than four directors as aresult of the vacancy. Whenever there is avacancy on the Committee, the remainingmembers may exercise all of the powers of the Committee as long as a quorum remains in office.

4. The Board or, in the event of its failure to doso, the members of the Committee, shallappoint a Chair from amongst their number. If the Chair of the Committee is not present atany meeting of the Committee, the Chair ofthe meeting shall be chosen by the Committeefrom among the members present. TheCommittee Chair shall be responsible for theleadership of the Committee, including thepreparation of the agenda, presiding overmeetings and determining Committeeassignments. The Chair presiding at anymeeting of the Committee shall have a castingvote in case of deadlock. The Committee shallalso appoint a Secretary who need not be adirector.

Time and Place of Meetings5. The time and place of meetings of the

Committee and the procedure at suchmeetings shall be determined from time to time by the members thereof provided that:

(a) a quorum for meetings shall be threemembers, present in person or by telephone orother telecommunication device that permit allpersons participating in the meeting to speakand hear each other;

(b) the Committee shall meet at leastquarterly; and

(c) notice of the time and place of everymeeting shall be given in writing by facsimile

communication or electronic mail to eachmember of the Committee, the internalauditors and the external auditors of theCorporation at least 24 hours prior to the timefixed for such meeting, provided, however,that a member may in any manner waive anotice of a meeting; and attendance of amember at a meeting is a waiver of notice ofthe meeting, except where a member attendsa meeting for the express purpose of objectingto the transaction of any business on thegrounds that the meeting is not lawfully called.The Committee may request the externalauditors to attend a meeting or meetings of the Committee, the expense of which shall bepaid by the Corporation and included withinthe external auditors' annual fee. A meeting ofthe Committee may be called by the Secretaryof the Committee on the direction of the Chairor Chief Executive Officer of the Corporation,by any member of the Committee, the externalauditors or internal auditors. Notwithstandingthe provisions of this paragraph, theCommittee shall at all times have the right todetermine who shall and shall not be presentat any part of the meeting of the Committee.

Reporting to the Board6. The Committee Chair is responsible for

reporting to the Board on behalf of theCommittee on matters considered by theCommittee, its activities and compliance withthis mandate and making recommendations to the Board as the Committee deemsappropriate.

Responsibilities and Duties with Respectto Financial Disclosure and Reporting7. For purposes of this Section, the term

“Corporation” shall include Hydro One Inc.and its subsidiary entities, as defined byNational Instrument 52-110 Audit Committees.

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APPENDIX “A”

APPENDIX “A”

To fulfill its responsibilities and duties withrespect to its monitoring and oversight of auditand financial matters, the Committee shall:

(1) in connection with its advisory functions:

(a) review the internal audit procedures of theCorporation and advise the Board on itsauditing practices and procedures and obtainadequate assurance that internal controls areadequate;

(b) meet separately with the external auditorsand internal auditors;

(c) recommend to the Board and shareholderthe retention and, if appropriate, the removalof external auditors, evaluating andremunerating them, and monitoring theirqualifications, performance andindependence;

(d) review periodically, reports on the natureand extent of compliance with requirementsregarding statutory deductions andremittances, including deductions andremittances under the Income Tax Act(Canada), the Excise Tax Act (Canada), theEmployment Insurance Act (Canada), and theCanada Pension Plan Act, each Act asamended from time to time, the nature andextent of non-compliance together with thereasons therefore and the plan and timetableto correct deficiencies and report to the Boardon the status of such matters;

(e) the Committee shall meet withmanagement to review and assess the processand systems in place for the review of publicdisclosure documents that contain audited andunaudited financial information and theireffectiveness;

(f) describe in the annual information form orother document required to be filed pursuantto applicable securities laws (including anyannual report on Form 40-F or Form 20-F filedpursuant to applicable United States securitieslaws) all information about the Committee asrequired to be described in such documentspursuant to applicable securities laws; and

(g) review and assess with management andrecommend to the Board for approval anymaterial transaction, contract or other matterinvolving the Corporation and a shareholder,or other person, which owns directly orindirectly voting securities of the Corporation.For this purpose, “material” means anytransaction, contract or matter thatsignificantly affects, or would reasonably beexpected to have a significant effect on, thefinancial position of the Corporation or themarket price or value of its securities.

(2) In connection with the exercise of itspowers:

(a) review and recommend to the Board forapproval:

(i) the audited annual financial statements of the Corporation, the annual managementdiscussion and analysis (“MD&A”) and anyrequired annual MD&A supplement andrelated press releases before the Corporationpublicly discloses this information;

(ii) the Corporation’s interim (quarterly)financial statements, interim MD&A and anyrequired interim MD&A supplement andrelated press releases before the Corporationpublicly discloses this information, unless the Board delegates to the Committee suchapproval authority as provided in paragraph


(b) below;

(iii) all financial statements in prospectuses,registration statements and other offeringmemoranda, and financial statements requiredby securities regulatory authorities;

(iv) the annual information form of theCorporation and any other similar disclosuredocument (including any annual report onForm 40-F or Form 20-F filed pursuant toapplicable United States securities laws)required to be filed pursuant to applicablesecurities laws;

(v) any prospectus, registration statement,offering memorandum of the Corporation, or any amendments thereto. For the purposeof this Mandate, reference to “prospectus”includes a preliminary prospectus, aprospectus, or an amendment thereto, butexcludes a prospectus supplement or pricingsupplement and “registration statement”includes any preliminary prospectus,prospectus or amendments thereto forming a part thereof, but excludes any prospectussupplement or pricing supplement forming apart thereof;

(vi) the annual financing plans and objectivesof the Corporation including, foreign currencyrisk and interest rate risk strategies; and

(vii) the Corporation’s annual Budget andOutlook, and annual Business Plan, and anyamendments thereof.

(b) subject to the authority delegated by theBoard, review and approve the Corporation’sinterim financial statements, interim MD&Aand any interim MD&A supplement, andreview and approve the related pressreleases;

(c) discuss with the external auditors results oftheir review of the interim financial statementsand interim MD&A, including any mattersexternal auditors may raise with auditcommittees under generally acceptedaccounting principles and auditing standardsin compliance with applicable securities lawsand regulations;

(d) review the issuance under a shelfprospectus or registration statement of theCorporation of debentures, notes and/or other unsecured and secured evidences ofindebtedness of the Corporation, inaccordance with the authority delegated bythe Board and the filing with securitiesregulatory authorities of any prospectussupplement relating thereto;

(e) review and oversee the audit plans of theinternal auditors and review, pre-approve anddirectly be responsible for overseeing the workof the external auditors of the Corporationengaged for the purpose of preparing orissuing an auditor’s report or performing other audit, review or attest services for theCorporation, including the resolution of anydisagreements between management and the external auditors regarding financialreporting. The Committee has the authority tocommunicate directly with the internal andexternal auditors.

The Committee shall also review the degree of co-ordination between the audit plans of theinternal auditors and the external auditors andwill inquire as to the extent the planned auditscope can be relied upon to detectweaknesses in internal control, fraud or otherillegal acts. Any significant recommendationsmade by the auditors for the strengthening ofinternal controls will be reviewed;

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(f) pre-approve all audit and non-auditservices to be provided to the Corporation by its external auditors in accordance with therequirements of applicable securities laws. In connection with non-audit services, theCommittee shall adopt specific policies andprocedures for the engagement of non-auditservices ensuring that the non-audit service isnot prohibited or restricted by applicablesecurities laws or the auditor independencerequirements of any securities regulatoryauthority. The Committee may also delegate to one or more of its members the authority topre-approve audit and non-audit services, inwhich event the pre-approval of audit andnon-audit services by any such member mustbe presented to and ratified by the Committeeat its first scheduled meeting following suchpre-approval;

(g) review the internal control procedures andmanagement’s annual internal control report to ensure compliance with the law andavoidance of conflicts of interest including,without limitation, a review of policies andpractices concerning officers’ expenses andperquisites, including the use of theCorporation’s assets;

(h) review the duties and responsibilities of internal audit staff respecting controls,procedures and accounting practices of theCorporation;

(i) review management programs andpolicies regarding the adequacy andeffectiveness of internal controls over theaccounting and financial reporting systemswithin the Corporation and, in particular, theCommittee will review management’s responseto the internal control recommendations of theinternal and external auditors;

(j) receive and review regular reports fromthe internal and external auditors on theappropriateness of the Corporation’ssignificant accounting and disclosure policiesand practices and changes thereto, includingany areas of management judgment andestimates that have a material effect upon thefinancial statements, alternative accountingtreatments and their ramifications,disagreements between management and theinternal and external auditors and include inthe review a discussion with the externalauditors of the quality, not just acceptability, of accounting principles, the reasonablenessof significant judgments, and the clarity andcompleteness of disclosure;

(k) review with management, the externalauditors and, if necessary, with legal counsel,any litigation, claim or other contingency,including tax assessments, that could have amaterial effect upon the financial position oroperating results of the Corporation, and themanner in which these matters have beendisclosed in the financial statements;

(l) review, at least annually, theCorporation’s corporate insurance program;

(m) annually discuss with external auditorsand report to the Board the auditors’independence from management and theCorporation, and in connection therewith,request their written confirmation ofindependence and disclosure of relationshipsthey have with the Corporation that may bethought to bear on independence, includingnon-audit related services and fees and theirimpact;

(n) review the minutes of any audit committeemeetings of subsidiary entities of the


Corporation and any significant issues andauditor recommendations concerning suchsubsidiary entities;

(o) review the basis and amount of theexternal auditor’s fees in light of the numberand nature of reports issued by the auditors,the quality of the internal controls, the size,complexity and financial condition of theCorporation and the extent of internal auditand other support provided by theCorporation to the external auditors andreview all other non-audit fees of the auditorsor other accounting firms;

(p) review management's retention ofconsulting and professional services, includingexternal legal services, on an annual basis;

(q) review and appropriately address anycomplaints regarding accounting, internalaccounting controls, or auditing mattersreceived since the Committee’s last meeting,including complaints confidentially submittedby those wishing to remain anonymous; and

(r) receive and review any reports ofevidence of a material violation of securitieslaws or breaches of fiduciary duty tabled bythe Corporation’s legal counsel as a result ofan inappropriate response from management.

(3) review and approve the Corporation’shiring policies regarding partners, employeesand former partners and employees of thecurrent and former external auditor of theCorporation.

(4) review, at least on an annual basis:

(a) for information purposes:

(i) overall financing of risk, including the purchase of insurance;

(ii) loss prevention policies and insurance risk management programs;

(b) and recommend to the Board for approvalfinancial risk management strategies,including foreign currency and interest raterisk strategies.

Responsibilities and Duties with Respectto the Pension Plan and Fund 8. The Board is a fiduciary of the Hydro One

Pension Plan (the “Pension Plan”). Theobjective of the Committee in relation to thePension Plan is to assist the Board in fulfillingits oversight responsibilities in all mattersrelated to the Pension Plan, including theHydro One Pension Fund (the “Fund”), and to ensure that all funding and investmentactivities meet the Pension Plan’s terms,administrative policies and legislativerequirements.

9. With respect to the Pension Plan and Fund, in connection with the exercise of its powers,and in connection with its advisory powers,the Committee shall be responsible for thematters more particularly set out in thePensions Governance Structure – Table (the“Table”), which is attached as Schedule A.Without restricting the generality of theforegoing, the Committee shall be responsiblefor the following matters and in the event ofany inconsistency between the items asenumerated below and the Table, theresponsibilities set out below shall beparamount:

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In respect of the Pension Plan and Fund:

(a) Review and recommend to the Board for itsapproval:

(i.) the overall pension governance structure,including the mandate of the Committee, andthe provisions of the Board mandate relatingto pensions;

(ii.) the Policy Asset Mix (the “PAM”),including the PAM ranges and Fundobjective(s);

(iii.) the organizational structure of investmentmanagement and benefit administrationfunctions (meaning internal or externalmanagement);

(iv.) appointment of actuary;

(v.) the funding strategy;

(vi.) the Pension Plan and Fund Annual Report(including financial statements);

(vii.) the appointment of the external PensionPlan and Fund Auditor; and

(viii.) the actuarial valuation report.

(b) Consider, Review and, if appropriate,approve the following matters:

(i.) the investment policies of the Pension Planand Fund, including the Statement ofInvestment Policies and Procedures (“SIP&P”),the Implementation Guidelines (Statement ofInvestment Principles and Beliefs - SIP&B), thePension Plan and Fund Monitoring andReporting Policy, the Rebalancing Policy, andthe Derivatives Policy;

(ii.) the Risk Management Framework;

(iii.) amendments to the Plan text, and thefiling of amendments with applicableregulators;

(iv.) the Fiduciary Development Policy andAnnual Education Plan; and

(v.) Annual Committee work plan related topension matters.

(c) Receive for its information the followingand such other reports as may be providedfrom time to time:

(i.) the results of monitoring of InvestmentManagers (“IM”s);

(ii.) reports on terminations, hirings andretention of IMs;

(iii.) reports on terminations, hirings andretention of third party service providers;

(iv.) quarterly reports on Fund performance,funded status, Fund objectives, and Fundadministration;

(v.) the results of the annual Pension Plan andFund risk assessment; and

(vi.) reports on compliance by third partyservice providers.

(d) Consider, review and, if appropriate,approve and recommend to the CorporateGovernance and Human Resources Committeefor its approval:

(i.) the pension communications strategy; and


(ii.) pension member communications asdescribed in the communications strategy (for example, report to members).

Engaging Independent Counsel and Other Advisors 10. In instances where members of the Committee

believe that in order to properly dischargetheir fiduciary obligations to the Corporation it is necessary to obtain the advice ofindependent counsel and other outsideexperts, the Committee shall have authority to engage and compensate the appropriateexperts. The Board shall be kept apprised ofboth the selection of the experts and theexpert’s findings through the Committee’sregular reports to the Board.

Corporate Scorecard 11. The Committee is responsible for monitoring

the Strategic Objectives contained in theannual Corporate Scorecard applicable to it,as determined from time-to-time by theCorporate Governance and Human ResourcesCommittee of the Board.

Review of Committee Mandate 12. The Committee shall review and reassess the

Committee’s Mandate at least annually andreport to the Board results of the review,including any recommended changes to theMandate.

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Level

Board ofDirectors(the “Board”)

Responsible foroverseeing theHydro One PensionPlan (“PensionPlan”) and PensionFund (“PensionFund”); responsiblefor all fiduciarymatters

Audit, Financeand PensionInvestmentCommittee (the“Committee”)

Responsible for theapproval of mattersrelating to pensioninvestments, andreview of andrecommendation ofall matters requiringBoard approval

Approval Items

Approves:• overall pension governance

structure, including themandate of the Committee,and the provisions of theBoard mandate relating topensions

• the Policy Asset Mix (the“PAM”), including the PAMranges (triennial review) andPension Fund objective(s)

• Pension Plan and Fund AnnualReport (including financialstatements)

• actuarial valuation reports • funding strategy• appointment of external

Pension Plan and PensionFund auditor

• appointment of actuary• organizational structure of

investment management andbenefit administration functions(meaning internal or externalmanagement)

Approves:• Investment Policies, including:

Statement of InvestmentPolicies and Procedures -SIP&P,Implementation Guidelines(Statement of InvestmentPrinciples and Beliefs – SIP&B),Pension Plan and FundMonitoring and ReportingPolicy, Rebalancing Policy,and the Derivatives Policy

• Risk Management Framework• amendments to the Pension

Plan text, and filing withapplicable regulators

• Fiduciary Development Policyand Annual Education Plan

• Annual Committee Work Planrelated to pension matters

Recommendation Items

Reviews andRecommends to theBoard:

All items listed forapproval of the Board, above

MonitoringItems

Monitors:• funded status of

the Pension Plan• achievement of

Pension Fundobjectives

• compliance by theCommittee with itsmandate

Receives for itsinformation:• results of

monitoring ofInvestmentManagers (“IM”s)

• terminations,hirings andretention of IMs

• terminations,hirings andretention of third-party serviceproviders

• quarterly reportson Pension Fundperformance,funded status,Pension Fund

Schedule A to the Audit, Finance and Pension Investment CommitteeMandate – Pension Governance Structure

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ManagementPensionCommittee (the “MPC”)

ADVISORY

Reviews andadvises on pensionimplementation andoperational matters,including allpension mattersrequiringCommittee andBoard approval

objectives, andPension Fundadministration

• annual PensionPlan and PensionFund riskassessment

• compliance bythird-party serviceproviders

Approves andrecommends to the CorporateGovernance andHuman ResourcesCommittee forapproval:• pension

communicationsstrategy

• pension membercommunications asdescribed in thecommunicationsstrategy (forexample, report to members)

Advises on:• all items for which

the Committee isresponsible,above, underApproval Items,RecommendationItems andMonitoring Items

• services providedby and compliancewith mandates byall third-partyservice providers,including but notlimited to thefollowing:

Level Approval Items Recommendation Items

MonitoringItems

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Pension Division Responsible for, among othermatters:• Conducting thorough and

careful analyses of allinvestment-related matters andbenefits administration mattersaffecting the Pension Plan andPension Fund;

• Providing recommendations onall pension matters requiringeither Committee or Boardapproval. Developing andreviewing all policies and theRisk Management Framework.

• The hiring, retention andtermination of all third partyservice providers to thePension Plan and PensionFund, including, but not limitedto; any:a) investment managersb) trustee/custodianc) external pension plan

administrator, andd) consultants;

• Performing regular andongoing risk analysis and risksensitivity analysis of thePension Plan and PensionFund;

• Conducting an annual PensionPlan and Pension Fund riskassessment

a) IMsb) trustee/

custodianc) external

pension planadministrator

d) consultants

Monitors:• quarterly reports

on Pension Fundperformance,funded status,performance ofIMs, and PensionFund objectives


MonitoringItems

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• Reporting to the Committee onthe purpose, performance andamounts of all derivativestransactions entered into onbehalf of the Pension Fund.

• Preparing and providingreports on Pension Fundperformance, funded status,Pension Fund objectives andPension Fund administration tothe Committee and the Board;

• Maintaining the internalcontrols of the Pension Planand Pension Fund, ensuringthe safekeeping of PensionFund assets;

• Voting on behalf of thePension Fund with regard tovoting rights related to pooledPension Fund units andinterests in partnerships orlimited partnerships;

• Co-ordinating fiduciarydevelopment for theCommittee and Board,ensuring that members of theBoard and Committee areable to fulfill their legal andfiduciary obligations in thisregard;

• Developing, maintaining, and adhering to all internaloperational policies andprocedures relating to thePension Plan and PensionFund;

• Ensuring that all regulatory,reporting and compliancerequirements relating to thePension Plan and PensionFund are met;

• Advising the Committee andBoard of the results ofmonitoring all third-partyservice providers;

• Executing the communicationsplan, which is based on thecommunications strategyapproved by the CorporateGovernance and HumanResources Committee;


MonitoringItems

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MonitoringItems

• Managing all the day-to-dayadministration activities of thePension Plan and PensionFund, including, but not limitedto:a) maintaining pension-

related records and data;b) calculating benefits

entitlement and processing benefit payments;

c) carrying out communications with members;

d) providing support to the Pension Plan actuary, as necessary;

e) satisfying all legislative and/or regulatory requirements pertaining to benefit administration;

g) providing support to the Labour Relations department, as necessary, and maintaining effective communications with that department;

h) managing special projects pertaining to benefits administration, as required; and

• Any other activities requiredfor the good, prudent andproper administration of thebenefits or funding functions ofthe Pension Plan and PensionFund not specifically assignedto any other committee.


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APPENDIX “B”

APPENDIX “B”HYDRO ONE INC. BOARD OF DIRECTORS

Mandate

Duties of the Board of Directors

1. The Board of Directors of Hydro One Inc. (the“Board”) is responsible for the stewardship of,and has the duty to supervise the managementof, the business and affairs of the Corporationincluding its Subsidiaries, as defined in theBusiness Corporations Act (Ontario).

2. The Board is elected by the sole Shareholder,the Province of Ontario, as represented by theMinister of Energy (the “Shareholder”). TheBoard is responsible for seeking andrecommending suitable Board candidates tothe Shareholder.

Accountabilities andResponsibilities

The Board shall have the accountabilities andresponsibilities set out below. In addition, theBoard shall perform such duties as may berequired under, and act in accordance with theBusiness Corporations Act (Ontario), theCorporation’s by-laws, the Memorandum ofAgreement with the Shareholder, dated March 27,2008 (the “Shareholder Agreement”), as may beamended from time to time, and all applicablelaws.

1. Corporate Governancea. The Board is responsible for developing the

Corporation’s approach to corporategovernance, including developing appropriatepolicies and procedures and delegating suchother matters as it sees fit to the CorporateGovernance and Human Resources Committeefor its review and consideration.

b. The Board is responsible for the Corporation’sapproach to its governance relationship withits sole Shareholder.

2. Strategic PlanningThe Board is responsible for: a. adopting a strategic planning process and

approving, on at least an annual basis, astrategic plan which lays out the strategicdirection of the Corporation in the context ofthe opportunities and risks of the business andthe business and commercial environment inwhich it operates;

b. reviewing and approving the business,financial, strategic and other plans proposedby management to enable the Corporation toexecute its strategy;

c. adopting processes for monitoring theCorporation’s progress toward its strategicand operational goals, and to revising andaltering its directions to management in lightof changing circumstances affecting theCorporation;

d. taking action when corporate performancefalls short of its performance targets or otherspecial circumstances warrant;

e. approving the audited financial statements,interim financial statements and the notes andmanagement’s discussion and analysisaccompanying such financial statements andthe Corporation’s Annual Information Form;

f. reviewing and approving material transactionsoutside the ordinary course of business,subject to the Shareholder Agreement; and

g. overseeing the Corporation’s Pension Plan andFund.

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3. Risk ManagementThe Board is responsible for:a. identifying the principal risks of the

Corporation’s business and ensuring theimplementation of appropriate systems toeffectively monitor and manage such risks witha view to the long-term viability of theCorporation;

b. reviewing the major risks to the Corporation’sbusiness objectives (Corporate Risk Profile);

c. reviewing the risk retention philosophy andrisk tolerance guidelines;

d. reviewing and approving the Corporation’senterprise risk management policy andframework;

e. overseeing the integrity of the Corporation’sinternal control and management informationsystems;

f. approving and monitoring compliance with,all significant policies and procedures bywhich the Corporation is operated; and

g. approving policies and procedures designedto ensure that the Corporation operates at alltimes within applicable laws and regulations.

4. Human Resources Managementa. The Board is responsible for approving the

appointment of the President and CEO. TheBoard is also responsible for approving thecompensation of the President and CEO andthe performance agreement of the Presidentand CEO following a review of therecommendations of the CorporateGovernance and Human ResourcesCommittee.

b. The Board will, to the extent feasible, satisfyitself as to the integrity of the President andCEO and other executive officers, and that thePresident and CEO and other executiveofficers create a culture of integrity throughoutthe organization.

c. The Board is responsible for ensuring thatsuccession planning programs are in place,including programs to train, develop, monitorand retain senior management, including thePresident and CEO.

5. Communications and Reportinga. The Board is responsible for approving and

revising from time to time, a disclosure policyto address accurate and timelycommunications with the Shareholder,bondholders, employees, financial analysts,governments and regulatory authorities, themedia and the public.

b. The Board is responsible for overseeing theCorporation’s reporting to the Shareholder,responses to requests for information andother reporting obligations as set out in theShareholder Agreement, and for ensuringopen and transparent communication with the Shareholder.

6. Board Meetings and Materialsa. The Chair, in consultation with the President

and CEO and the General Counsel andSecretary, shall develop the agenda for eachBoard meeting.

b. Meeting materials shall be provided todirectors before each Board meeting insufficient time to ensure adequate opportunityfor review.

c. Independent directors (as defined underapplicable securities legislation) shall holdregularly scheduled meetings at which non-independent directors including members ofmanagement are not present.

7. Committees of the Boarda. The Board discharges its responsibilities both

directly and through its Committees: the Audit,Finance and Pension Investment Committee,the Business Transformation Committee, the


Corporate Governance and Human Resources Committee, the Health, Safety andEnvironment Committee, the Regulatory andPublic Policy Committee and the StrategyCommittee. In addition to these standingCommittees, the Board may from time to timeappoint ad hoc Committees to address certainissues of a more short-term nature.

b. The Board is responsible for approving themandates for each Board Committee.

c. To facilitate communication between the Boardand each Board Committee, each CommitteeChair is responsible for providing a report tothe Board on material matters considered bythe Committee at the first Board meeting afterthe Committee’s meeting.

Director Development andEvaluation

1. Each new director shall participate in theCorporation’s Director Education Program and any continuing director developmentprograms.

2. Annually, with the assistance of the CorporateGovernance and Human ResourcesCommittee, the Board shall evaluate andreview the performance of the Board, each of its Committees, each of the directors andthe adequacy of this mandate.

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APPENDIX “C”

APPENDIX “C”

APPENDIX “C”HYDRO ONE TRANSMISSION AND DISTRIBUTION LICENCES

Transmission Licence

The following are the key conditions of ourtransmission licence:• Obligation to Enter into Agreement

with the IESO – We are required to enterinto the operating agreement with the IESO,providing for the IESO’s direction of theoperation of our transmission system. Thecurrent agreement expires December 31,2019. See “Regulation – ContractualArrangements, Codes and Licences –Operating Agreement with the IESO”.

• Non-discriminatory Access – If agenerator, distributor, retailer, or customerrequests that we convey electricity using ourtransmission system, subject to capacityconstraints, we must make an offer to conveyelectricity on behalf of the applicant consistentwith the applicable Market Rules and the TSC.

• Obligation to Connect and PriorityConnection Access – We will not refuse tomake an offer to connect to our transmissionsystem which has been made in accordancewith the terms of our transmission rate order,the Market Rules and the TSC unless we arepermitted to do so by the OEB, the legislationor any codes, standards or rules with whichwe are obligated to comply as a condition ofour licence. The connection procedures of ourlicence outline the respective responsibilities of Hydro One and of the connecting customer.We are required to provide priority connectionaccess to the transmission system for qualifiedrenewable energy generation facilities, i.e.those facilities that meet the requirementsprescribed by Provincial regulations.

• Obligation to Maintain SystemIntegrity – We must maintain ourtransmission system to the standardsestablished in our agreement with the IESO,the Market Rules and any other recognizedindustry operating or planning standard whichhas been specified by the OEB.

• Transmission Rates – We may not imposecharges for the transmission of electricity orconnection to our transmission system exceptin accordance with our transmission rateorder.

• Separation of Business Activity – Our transmission business must separate itsfinancial records from those of any otherbusiness of Hydro One.

• Expansion of the Transmission System– Construction, expansion or reinforcement of our transmission system or the making of an interconnection is subject to legislation,regulatory approvals, licences, codes and the Market Rules. Either the IESO or the OEBmay require us to expand or reinforce ourtransmission system if it determines that doingso is necessary for the maintenance ofsecurity, reliability or integrity of the system.

• Information Disclosure – We are requiredto maintain records, provide the OEB withinformation it may require from time to timeand inform the OEB of any material change incircumstances no more than 20 days after thedate of occurrence.

• Restrictions on Provision ofInformation – We are restricted in our useand disclosure of information pertaining toconsumers, retailers, wholesalers andgenerators. We must obtain consent for


disclosure of such information, except incertain specified situations and inform suchparties of the conditions under which theirinformation may be disclosed without theirconsent.

• Expansion and Upgrading ofTransmission System Further toMinisterial Directive – For the purposes of accommodating the safe connection ofrenewable energy generation facilities, weshall develop and implement transmissionprojects and develop and seek approvals for the expansion or reinforcement of ourtransmission electricity system as required.

Distribution Licences

The terms and conditions of our three distributionlicences (Hydro One Networks Inc., Hydro OneBrampton Networks Inc. and Hydro One RemoteCommunities Inc.) are similar to the terms andconditions of our transmission licence describedabove. Additional key conditions include:

• Separation of Business Activity – We shall keep the distribution businessfinancial records separate from those of thetransmission business in accordance with theAccounting Procedures Handbook and asdirected by the OEB.

• Distribution Rates – We shall charge ratesin accordance with an order of the OEB andin accordance with the methods or techniquesset out in the Electricity Distribution RateHandbook, the Distribution System Code, theStandard Supply Service Code and the RetailSettlement Code.

• Code Compliance – We shall comply withthe Retail Settlement Code, the DSC, theStandard Supply Service Code and theAffiliate Relationships Code for ElectricityDistributors and Transmitters.

• Market Power Mitigation Rebates – We must pass through any rebates from OPGto customers in accordance with the specifiedrebate conditions.

• Obligation to Connect and Serve andPriority Connection Access – We mustconnect a building to our distribution systemunder prescribed circumstances, and sellelectricity or ensure electricity is supplied toevery person connected to our distributionsystem, in accordance with our distributionrate orders and the Standard Supply ServiceCode, and sell electricity to consumersconsistent with the terms and conditions ofthese instruments. We are also required toprovide priority connection access to thedistribution system for qualified renewableenergy generation facilities, i.e. those facilitiesthat meet the requirements prescribed byProvincial regulations.

• Preparation and Submission of Plans –We are required to prepare and submit plansfor approval by the OEB, in the manner andat the times mandated by the OEB or asprescribed by regulation, that identifydistribution system planning activities andexpansion or reinforcement of the distributionsystem required to accommodate theconnection of renewable energy generationfacilities and forecast load growth. Thecontents of our Distribution System Plan filing will provide information to support the achievement of the RRFE performanceoutcomes; customer focus, operationaleffectiveness, public policy responsiveness and financial performance.

• Obligation to Maintain SystemIntegrity – We will maintain our distributionsystem in accordance with the standardsestablished in the DSC and Market Rules andany other recognized industry operating orplanning standards adopted by the OEB.

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• Customer Complaint and DisputeResolution – We will have a publishedprocess for resolving disputes with customersin a fair, reasonable and timely manner andrefer any unresolved complaints to a thirdparty chosen by the OEB for resolution.

• Conservation and DemandManagement – We will meet our OPAassigned CDM targets through the delivery of OEB approved CDM programs and CDMprograms made available by the OPA. Wewill provide programs to all consumer types incompliance with the CDM Code for ElectricityDistributors.

Hydro One Networks Inc. holds an interimdistribution licence to serve the community of Cat Lake in Northwestern Ontario. The interimlicence was first issued in July 2006 and has been renewed regularly for sequential terms ofthree months each.

APPENDIX “C”

Mailing AddressHydro One Inc.483 Bay Street8th Floor, South TowerToronto, OntarioM5G 2P5